Remember ... for REITs

1. During good times perform like a bond.. steady DPU and steady albeit slow price rise

2. During bad times perform like a stock, susceptible to bad news and can u-turn immediately and zoom down.

3. REIT like bonds are very affected by interest rates... if rates go up, REITs come down and vice versa.

So know what you are investing.

This post has been edited by gark: Jul 18 2013, 10:19 AM

Mall REIT traditionally have the least dividend yield, typically <5% and <4.5% net tax. Now 10 year MGS is heading towards 3.5%, from 3% previously.

REIT yields are no longer attractive to compensate for the extra risk (~100 bps). So the yield have to rise to match the risk, hence the prices are falling.

The more the MGS security yield goes up, the more lower the prices to compensate.

This post has been edited by gark: Jul 23 2013, 01:41 PM

Capital loss might wipe out your dividend gains... that is the risk associated with REIT over Bond. If you are holding cash, it is good news, if you are holding REIT it is bad news.

Bond you can wait up to maturity to have capital protection, REIT is perpetual hence no protection. Both are subject to interest rate risk.

Hence REIT usually trade at 100-250 bps above 10 year government security.

This post has been edited by gark: Jul 23 2013, 02:07 PM

10 Year MGS yield from 01-2001 to 06-2013



Look at the MGS 10 year yield, over the course of 13 years the lowest yield is about 3.2% and the median yield is about 4.5%. The highest yield is about 5.5%.

During the 2008 financial crisis the yield jumped to 4.8% and REITs were then selling at yield of 7%-9% (before tax), typically about 250-400 bps above MGS 10 year.

From 2009 until 2013 you can see the yield compression, which makes the REIT attractive, hence the prices of REIT is going up. Now for the last two months, you can see the MGS yield has already jumped 50 bps to 3.8%. This will likely going to continue until the market comes to an equilibrium of 4.0%-4.5%. This means another 20-80 bps to go.

Fair price for REIT yield will be 6%-8% IF the MGS continue to climb to 4.5%. So with REITs yielding 5%, the REIT price is expected to drop another 20% or so to match the 10 year MGS yield.

However not all REIT is expected to move the same, those with higher quality asset will be more stable.

End lesson : REIT 101 -

This post has been edited by gark: Jul 23 2013, 02:04 PM

REIT Yields needs to be above MGS/Bond yields.. due to the following

1. REIT have 10% tax, bond have zero tax
2. Bond is guaranteed at maturity, REIT is not
3. Bond depends on interest risk and bind quality rating. But REIT have more factors that bonds which makes REIT more volatile.

This post has been edited by gark: Jul 23 2013, 02:21 PM

Check out a few pages back, the theory behind the sliding REIT prices vs MGS Yield.

Maybe IF MGS Yield falls back to 3%...

Got dividend yes... but how long to wait until replace capital loss? That is the reason REIT is not equivalent to FD... it is more riskier. Those that compare FD/Govt bond which is guaranteed vs a REIT which can result in capital loss and wipe out all your dividend gains is not seeing the big picture. In stock investment you donlt just calculate dividend and forget about capital gain/loss. you need to calculate total gain/loss via ROI/IRR.

REIT should be yielding at least 200-300 bps above FD and MGS security yield (known as risk free rate) to compensate for the risk & volatility. If you look at PE, most REIT are trading at PE of 20-30x... is that a reasonable rate? KLCI index is at about PE of 12-18x. If you are hoping for rental growth in REIT, it generally perform at CPI rate of 2-3% p.a. excluding those who take in more debt or having rights issue which is mostly barely yield accreditive.

This post has been edited by gark: Jul 25 2013, 03:34 PM

MGS 10 year security yield is currently 3.7% tax free and capital guaranteed.

The top 5 REIT is yielding 5% gross, and 4.5% after tax and capital not guaranteed.

Do you feel the 70 bps difference can compensate you for the risk you are taking? Is the yield decent enough for you?

If yes, buy more, if no wait for more sell down.

This post has been edited by gark: Jul 25 2013, 03:32 PM

MGS yield has consistently fallen from 4.5% in 2009 until 3.2% (~30% drop) lowest early this year. This is commonly called yield compression.

As a result REIT yield follow the trend to fall from 6.5% to 4.5% (~30% drop), when yield drop, price goes up accordingly to match the DPU to the yield (capital gain in REIT share price).

Now we are seeing the trend begin the reverse....so is the yield still acceptable for you or not?

How much MGS 10 Y will rise will be anyone's guess...that will determine the acceptable yield for the REIT. EPS and major market player is selling down, hence they are 'predicting' MGS yield will rise further. So if they are right or wrong remains to be seen.

This post has been edited by gark: Jul 25 2013, 03:56 PM

For MY REIT, you need to look at Malaysia long term bond yields.... US Yields generally does not affect MY REIT too much...

Bond yield and interest rate is correlated, but often interest rate has a lag time, ie. until the government can no longer control the yields. Bond yield is based on market price so it is more fluid.

For me i expect the MGS 10Y to stabilize somewhere around 4-4.5%, which makes high quality REIT yield of 5.5%-6%. It might not reach there and it might overshoot...wait to be seen

This post has been edited by gark: Jul 26 2013, 09:54 AM

So 6% is the magic number.... Maybe 5.5% also can already..

Then we wait with buckets to collect.

This post has been edited by gark: Jul 26 2013, 02:31 PM

It is a stapled REIT (like 2 in 1 stock..) with dividend of 3.3%.

This post has been edited by gark: Jul 26 2013, 03:49 PM

Not really.. KLCC property owns 100% of KLCC REIT, you can't invest in the REIT directly. Sunway & IGB only owns 50% of their reit and you subscribe to their REIT directly.

The KLCC REIT part pays minimum 90% to KLCC property with only 10% tax. How much KLCC property decides to pay after that to you minority shareholders depends on the management.

This post has been edited by gark: Jul 26 2013, 04:29 PM

Ada ada... only obliged to pay out the REIT portion for the minorities. But not obliged to pay out other income/gains for non-REIT properties. And no gearing limit of 50% net asset as well....



This post has been edited by gark: Jul 26 2013, 05:00 PM

Sunreit will take a 33% reduction in income from Putra Hotel & Putra Mall starting from 1H13 till 1H14 due to upgrading works.

Also Sunreit is a mumbo jumbo of properties.. Mall+Office+Hotel+Hospital...

1 Premier Mall
2 Sub-premier Mall
1 Hypermarket
1 Premier Hotel
3 Sub Premier Hotel
1 Apartment
1 Hospital
1 Premier Office Block
3 Sub premier Office Block

This post has been edited by gark: Jul 26 2013, 06:27 PM

Historically shows, when that happen, REIT will have a selldown if they ask for more money via rights issue or private placement to repay loans.

Effectively rights issue is a gun to your head, pay up or get diluted. Also private placement is dilutive, means your stake and dividend payment is cut. No REIT investors will want to face this issue. The last time Sg REIT did just that and promptly the reits dropped 10%-20% overnight...

Both also not a good thing to do, unless they do it to purchase yield accreditive investments (use rights/private placement money to buy new investment which ADD yield).

This post has been edited by gark: Aug 1 2013, 10:02 AM

I go to Subang Parade on off monthly for the past >10 years, go eat at TGIF/Sari Ratu/other resto or catch a movie at MBO. Easy access, no hassle and no queue.

Some of the shops I see there like Yamaha Music, MPH, Parkson, coffee bean, dome, pizza hut & mC D has been there for the past 20 years... means they are doing ok as a neighbourhood mall. Hardly see any vacant lots all the while.

But then again..I do frequent Empire as well but park at SP.

This post has been edited by gark: Aug 15 2013, 06:28 PM

Billions of USD that has been invested in emerging market are coming home, so they sell emerging convert to USD and buy US equities. This will last for sometime. As long as US bond yields are increasing and US stock market continue to up, this appreciation of USD will continue to go up.

Previously 3-4 years it was the opposite, so USD weakens. So this is merely correcting the imbalance.

Us 10y bond yield has gained 120 basis points from its lowest. Opr is still 25 basis points. How long can this imbalance last?