Thanks Jordy. I think the idea behind reits is "ALMOST" same as we buy a house for investment. We loan through bank and collect monthly payment to repay the debts. In the end we owned the house. It will took few decades to settle the loan same goes for reits.
The yield will improve in future as due to below factors:

1. Increase in rental rates.
2. Reduce in interest payment.


This post has been edited by darkknight81: Mar 23 2010, 01:10 PM

Bought some more Stareits today!!! Follow Cherroy......

darkknight81,

Yes, that is the reason why we buy REITs. Other advantages of REITs are that we do not need to manage our own properties, and we are also able to leverage on the diversification of REITs.

Mind you though that the possibility of reduction of interest rate is very slim at current economic situation, therefore we won't take that into consideration.

Yup. Thats why i have factored in by assuming the interest at 3.5% for this year.

One thing you have to be careful with Interest rates.

For short term loan of 5 years used for working capital, many companies do not use their properties to pledge.

Therefore these working capital loan interest rates are higher than any property loans.

Property loan rates so far are among the lowest in the market, as the risk is much lower.

Many banks compete businesses in this area, also resulting lower rates.

I do not know whether SC allow REITS to take property loans since money is collected by way of private placements or through proper right issues for purchase of any property. . KInda double financing to me if property loan is taken again.

The borrowings of REITS are mainly for working capital.

Perhaps you are more of pro REITS, less neutral in your computations.

So be careful.

This post has been edited by SKY 1809: Mar 24 2010, 08:28 AM

Base on their 2009 annual report. It is 3%. Of course i do agree with you guys on the risk of interest hike in future to maybe 7 or 8% also possible. Its all depends on how UOA manage it. For me i will reduce the dividend payout to maybe 7 to 8% yield and allocate more fund to reduce the loan especially when the interest are still low.

This post has been edited by darkknight81: Mar 24 2010, 08:08 AM

Well, if you very serious of investing in REITS.

My advice to you is to know the types of interest rates for different types of loans.

- Car loans
- Personal loans
- Business or working capital loans

( Mostly above BLR )

- property loans, as I say competition makes it cheaper

Also risks play an important role.

I mean these are just the basic stuff to know.

That is all.

The Edge, M-REITs provide opportunities in mispriced assets
http://www.theedgemalaysia.com/in-the-fina...ced-assets.html

Private placement is not a form of borrowing but required SC approval, which the company needs to state the reason for it in order to get it approve. Generally there are guidelines for the use of the money raised when SC approved the private placement or right issue.

So if the private placement stated the money raised is used to fund the acquisition, then it must use for it.

Borrowing/term loan can use for properties acquisition as long as don't exceed the 50% guideline, there is no rule stated borrowing must be solely for working capital, as far as I know. Correct me if I am wrong.

So far how is the interest rates for "ALL REITS" From what i know UOA REITS INTEREST RATES IS 3%. How about AXREIT, ATRIUM AND QCAPITA? You are heavily invested into these 3 counters from what i know.

This post has been edited by darkknight81: Mar 24 2010, 11:11 AM

Yes, you are right.

But if your purchase of property is fully covered by either a private placement or right issue ( like AXreit ) :-

1) there is no need to take a loan again , for what reason you need one ? It is a form of double " financing " to do so.
2) Unless it is for working capital , that is normal.


Frankly, and personally I also prefer REITS to get a longer term property loan ,and the money is standby for their working capital.

1) It could be cheaper if the money could be parked back like those full flexi housing loans for individuals.
2) a long tenure loan may cut down the risk faced by a short term loan borrower.

P/S : I do not think REITS use 5 years short term loans to partially buy properties. Correct me if I am wrong.

Just my view.

---

Added on March 24, 2010, 12:22 pmAXreit > quite close to 4.5% for short term loan.

Read somewhere, but cannot recall.

Frankly AXREIT might have more disclosures than others , more transparent in a way.

This post has been edited by SKY 1809: Mar 24 2010, 12:36 PM

Leveraging as i have mentioned before. Borrowing at lower rates to get higher returns in terms of properties yield.

UOA REITS also have its weakness as 100% of its properties are acquired from its mother company so i don think the price are really fair compare with other reits as they can buy up undervalued properties which the owners want to dispose desperately.

Company and individual is different. Company cannot secure individual housing loan like 25 years. Bank don't do it.

A lot of borrowing are under 5 years under commercial paper, term loan and various type of credit.

It is already considered long tenure if company can secure borrowing more than 5 years period.

As I mentioned before, refinancing availability is very important for reit with gearing.

In 2008, we saw a lot of reit under pressure being sold down and some even went under due to inability to get refinancing on matured borrowing, which eventually force them to liquidate their properties, or fire-sale.

Most reit borrowing cost are around 4-5% as far as I came across.

the risks probably is managing the cash flow ,,,,,,,,,and based on 4-5% cost.... will it burden their financial....

Since the reit business model is simple, cashflow managing actually derived from occupancy rate and tenant's prompt payment.

For reit, if able to have high occupancy and tenant quality is good aka long term lease and prompt payment each month, then 95% of the reit manager job is done. It is already ensure the reit is under good cashflow position and profitable in general.

As in general, commercial properties yield is around 7-8%, so with 4-5% borrowing cost with high occupancy with prompt payment from tenants, then don't need to work out the math also can rougly know the cashflow situation.

So as mentioned before for reit, the priority concern is more about lease issue.

Yup simple math will do actually provided the occupancy rates can be improved or at least sustain and finally make sure interest rates does not surge to sky high like 1998. Very easy to monitor i like this type of investment.

This post has been edited by darkknight81: Mar 24 2010, 03:39 PM

snap this Gearing ratio from the report from maybank.


This post has been edited by whizzer: Mar 24 2010, 04:42 PM

Starhill gearing very low Lots of room for leveraging

Now i know why Master Cherroy pick up starhill liaw.

This post has been edited by darkknight81: Mar 24 2010, 05:21 PM

According to the schedule by Maybank IB, Tower REIT has 9m ST debt and Total Debt is 114m. But why is the ratio at 92%?

Gearing and cashflow are important to REITS.

Cannot just simply assume they would have the cashflow.

First, under the accounting method, you need to provide ONLY the interest accrued to the profit and loss accounts.

Whatever profit ( realized at the end of the day), you can safely pay out 90% as dividends.

However, for actual cashflow you need to factor in the whole instalment amount. The total instalment amount ( term loans ) if for short term loan of 5 years is fairly big. OD could be exceptional, but some may attach with a sinking fund condition.

There could a a mis match, meaning short of cashflow . though the law may allow you to pay out 90% of the realized profit.

The balancing act to me is not as easy as Investors thought. To say about Leveraging is much easier than in practice.

Just my view

---

Added on March 24, 2010, 6:26 pmIt means 92% of the total loan is in the form of short term

This post has been edited by SKY 1809: Mar 24 2010, 07:44 PM