Can you post the charts? They look interesting.

Looking at the situation now, selling the 2 properties will only serve to reduce the prospects of EC World.
i doubt we will see 75 cents again at this rate.

Just take it as lesson learned. Look for other better investments rather than seek to average your cost and live on hope.

https://secure.fundsupermart.com/fsm/articl...ing-for-s-reits

Think your 5-6% yield for S-REITs is attractive? Think again. A hurricane is coming for S-REITs.
Amidst the challenging macroeconomic environment, REITs have fallen pretty hard. In this article, we explain why rising interest rates can have a profound impact on S-REITs.

Yeo Hui Shi
|
Published on 30 Jun 2022

Higher interest rates are likely to have significant implications for S-REITs, which are darlings of the Singapore stock market.
First, higher interest rates make funding more expensive. Rental reversions may be insufficient to make up for the increase in interest expense, resulting in a flattish or negative DPU growth.
Secondly, higher interest rates also tend to decrease the value of properties held by REITs. This can translate into a lower NAV, and in turn, weaker share prices.
Lastly, higher interest rates have reduced the appeal of S-REITs to income-seeking investors. Investors are now compensated with a lower risk premium for holding S-REITs due to narrowing yield spreads.
Against the current backdrop, the valuations of the S-REIT sector could see a further re-pricing. To navigate this new environment of higher rates, investors should remain selective.

REITs are the darlings of the Singapore stock market. With the sector (as represented by the FTSE ST REIT Index) coming down -5% year-to-date, investors might be pondering whether it could be a good buying opportunity. After all, there is the theory that REITs can provide protection during an inflationary environment as rents tend to increase.

Following the fall in share prices, the S-REIT sector is now offering forward yields that are north of 5%. This may look somewhat decent when compared against what investors have been receiving over the last couple of years.

However, amidst the challenging macroeconomic environment of rising interest rates, we believe investors should think twice about the attractiveness of S-REITs. In fact, lo and behold, higher interest rates are likely to have significant implications for them.

Higher funding costs to put DPU under pressure
First, higher interest rates make funding more expensive. In general, REITs tend to take on debt to finance their growth strategy. This also explains why the S-REIT sector possesses a considerable amount of debt, with an aggregate leverage of around 37%.

Interest rates are likely to stay elevated for an extended period of time, with REITs being forced to refinance their expiring loans at higher rates. All else being equal, higher borrowing costs will lower distributable income, thus placing a downward pressure on distribution per unit (DPU).

Currently, the average cost of debt of S-REITs is slightly north of 2% as they have managed to lock in lower interest rates over the last few years. However, with higher interest rates taking hold, S-REITs would eventually face the reality of a higher average cost of debt.

We believe that the average cost of debt could move towards 4% in the next couple of years. This increase in interest expense from higher borrowing costs is likely to result in a decline of over -20% in DPU from today’s levels.

On a slightly more positive note, a mitigating factor could be positive rental reversions, as higher rental income could help to offset the increase in borrowing costs. Now, the million dollar question is whether rental reversions can make up for the impact of rising rates. The short answer is no.

In the first quarter of the year, the rental reversions of blue chip S-REITs such as CapitaLand Integrated Commercial Trust (SGX:C38U) and Ascendas REIT (SGX:A17U) have ranged from around -6% to +4% (Figure 1).

Moving forward, the annual rental reversions across most S-REITs are likely to be within the positive low single-digit range, supported by the elevated levels of inflation. While decent, the rental reversions may still be insufficient to make up for the increase in interest expense, resulting in a flattish or negative DPU growth overall.

By and large, we expect DPU to take a beating due to higher funding cost from rising rates. In particular, REITs that have less ability to make up for the impact of higher funding cost through organic growth (i.e. rental reversions) are going be hit harder.

Figure 1: Rental reversions of blue-chip S-REITs



Lower property valuations to impact NAV
Secondly, higher interest rates also tend to decrease the value of properties held by REITs, which are measured based on techniques including the discounted cash flow method and the capitalisation method (Table 1). (Not able to paste table 1. )

The concept of how rising rates can affect the discounted cash flow method is relatively simple – discount rate increases due to a higher risk-free rate, which lowers property valuation.

Meanwhile, the capitalisation method is less understood by investors. The capitalisation is essentially dependent on the capitalisation rate, which corresponds to an investor’s required rate of return less the expected growth of the property. Rising interest rates would push the required rate of return up, hence increasing the cap rate.

From this, we can also establish a relationship between the cap rate and interest rates (i.e. cap rate = interest rates + spread). To illustrate, we assume that interest rates (as represented by the 10-year Singapore government bond yield) reaches 4%. Using a spread of 2% (which is around historical levels), we would arrive at a cap rate of 6%. This is higher than the cap rates over the past few years, which were at around 4 to 5%. A higher cap rate will therefore, lower property valuations.

A factor that could cushion the impact of higher cap rates would be a higher net operating income. In spite of this, we opine that the growth in net operating income is generally unlikely to be strong enough to completely offset the impact. Besides mild rental reversions, several S-REITs have reported a rise in operating expenses as a result of higher electricity costs which could dampen the growth in net operating income.

Overall, we expect property valuations to decrease, which can translate into a lower net asset value (NAV). In turn, share prices are likely to weaken, considering that investors ideally should still be paying a similar P/NAV multiple for the same REIT.

Yields are no longer looking attractive
Lastly, higher interest rates make the yields generated by REITs look less attractive as compared to less risky investments like fixed income, thereby reducing their appeal to income-seeking investors.

Currently, the yield spread between the S-REIT sector and the Singapore 10-year government bond has narrowed to 2.6% (Figure 2). This is much lower than the five-year average of 3.7%, meaning that investors are now compensated with a lower risk premium for holding S-REITs.

Figure 2: Yield spread has fallen dramatically this year



Even as government bond yields rise, investors should be compensated with the same risk premium as before. To maintain the same yield spread, the yields of REITs would have to expand, which also implies that share prices have to decline.

At present, the Singapore 10-year government bond yield has surpassed 3%. We believe that the yield could go higher, and arrive at 4%. Coupled with the historical yield spread, investors should be expecting a yield of at least 7%. To get to such levels of yield, the share price of the S-REIT sector clearly has plenty of room to fall from today’s levels.



Still think that your 5-6% yield for S-REITs is attractive?
In a nutshell, when it comes to investing in REITs, looking at the yield alone is not enough to determine its attractiveness.

We would like to caution investors that as much as rental rates tend to increase in an inflationary environment, rising rates will have a profound impact on S-REITs. This impact can be measured in terms of DPU growth, NAV, and yield spread – all of which can ultimately affect share prices.

Against this backdrop, valuations of the S-REIT sector could see further re-pricing. Nonetheless, not all REITs are created equal; some could be hit harder as compared to others due to their portfolio positioning (e.g. debt structure, weighted average lease expiry). Hence, investors of S-REITs should remain selective.

Manulife 1H20222

https://links.sgx.com/1.0.0/corporate-annou...1c50cd29ac0d9d0

This post has been edited by prophetjul: Aug 4 2022, 08:44 AM

1. The management is elected to receive its fees in cash. (Will be perpetual impact)
2. higher interest costs (Depends where rates end up)
3. Lower occupancy (Hopefully they can mitigate this)

All in all, 2.56 p represents approx 8.4%. In the context of tenant being UK government and the high occupancy rate and long WALE, 8.4% is more than decent IMO.
Plus the expected revision of rent in March 2023 which is expected to be max at 5% with inflation at such high rate.

I am quite happy. Let's see what management will do with the empty properties.

Utd Hampshire results: https://links.sgx.com/1.0.0/corporate-annou...884365c21f4559a

Sasseur results: https://links.sgx.com/1.0.0/corporate-annou...47e0dd0139592bc

hansel
hi bro, not so happy with Utd Hampshire's results.

i have emailed them the following:




They have not emphasise what these Top Ups and Stipulated Damages are? Any idea?

Cromwell REIT results: https://investor.cromwelleuropeanreit.com.s...html/id/2400229

Thanks Bro
You are much better at reading these reports than me.

Do we receive the DPU or Adjusted DPU? i am confused by this.
NPI has increased by 10%. However, DPU has reduced by 4.6%
i get concerned when this happens. It can mean the managers are only looking for higher AUM and higher fees at the expense of shareholders.

Thanks Bro.
Understood. And that is my worry. Increasing income. Decreasing DPU.

Answer:

One offs revenue:



From IR:



Pg 13 of Financial Report

This post has been edited by prophetjul: Aug 12 2022, 06:39 PM

i wonder with financial challenges to developers, will existing properties trump new ones?

Since existing properties will no incur further inflationary costs from construction and others.
While new build will have to cover these 'newly' inflated costs?
This will lead to older properties have lower rents compared with the new builds.

Thoughts, anyone?

The weak Euro is not helping with DPU in SGD.

Surprisingly Cromwell is holding quite well.

Bro

Your sources of info is incredible!

Thanks!

i meant the blog news.

Thats why we have sellers and buyers.

Cromwell's Sensitivity to Interest rate hikes.



https://www.reit-tirement.com/2022/08/cromw...XQCqC5ZSi2Vo4ec

KORE and Utd yields ever reached 15% yield AFAIK.