ARs for various REITs have been released. You guys can check the SGX announcement to have a look at them.
Came across the Black Crane + Quartz vs Sabana thing. This is particularly useful for newbies in S-REITs.
https://links.sgx.com/FileOpen/Clarificatio...t&FileID=653906QUOTE
E Our Response to Issue 6 on “Ongoing unhappiness with Valuation Gap”
Consider for instance, two Singapore REITs invested or investing in similar property assets. When efficiently run, they would enjoy similar rent efficiency, as their tenants would be paying similar rent rates on similar properties. Yet, the stock market can and has valued their units differently for anecdotal reasons of scale or sub scale set out below.
Scale REITs, which are those with billions in market value of units, tend to attract more institutional investors who can make larger investments, often staying invested for long term periods for recurring yields. When more investment demand chases a limited supply of units of scale REITs, their traded prices tend to be higher. Singapore REIT analysts describe higher unit prices as “yield compressing”, i.e., for the same rent efficiency, when the stock market is willing to pay a higher price to hold the units, the resulting distribution yield (a key metric to unitholders) comes down or becomes “compressed”. In other words, the cost of equity is lower for scale REITs. It is a virtuous cycle, since scale REITs enjoying compressed yields can go on to buy a greater number of higher rent yield properties, and to issue new units as acquisition currency, thus growing their size and scale further. When a REIT scale grows, it attracts more lenders, ranging from banks to public bonds investors. When more lenders compete to lend, the scale REIT enjoys a lower cost of debt. Given a fair market rent efficiency, leveraged with a lower cost of debt, a scale REIT has a better after-debt yield.
From listed real estate companies, to listed conglomerates and Singapore REITs, their annual or periodic valuations of their real estate by property valuers are basically professional opinions of value. Until and unless their properties are actually sold, such annual valuations are professional opinions, awaiting the actual test of the sale of assets. Meanwhile, it is the external free market force of demand and supply for quoted shares of listed corporations or quoted units of REITs that decide their traded prices. For scale REITs, the traded prices of their units are often at or above professional valuation and so their yields are compressed. For sub scale REITs, the situation is the converse, often of traded prices of their units being lower than professional valuation and so of higher distribution yields. It is up to stock market investors as to which investments to prefer.
Sabana REIT is a relatively smaller REIT that may lack the scale benefits of cheaper equity and debt that are available to larger REITs. One of the rationales for the recent proposed merger was that, if it had merged with ESR-REIT, the resultant enlarged REIT could hopefully enjoy (to some extent) scale benefits.
As it is, the current traded Sabana REIT unit prices, although at lower-than-professional valuation prices, offer a distribution, amongst the higher range in Singapore (which even QBC has also observed) for yield-looking investors. That a smaller REIT, like some listed real estate companies, have market traded prices lower than their valuation NAVs, are outcomes of market forces.
Presumably it was such a “valuation gap” that drew QBC to buy Sabana REIT units. Even as lowerpriced Sabana REIT units deliver commensurate higher yields, QBC publicly continue to advocate that they would not sell their Sabana REIT units below professional property valuations. Their insistence and advocacy is their investment prerogative. However, we find it necessary to point out to the investing public, that there are other willing-buyers-willing-sellers, whose transaction activities at prevailing market forces, set up a current market reality of lower-than-valuation traded prices, offset by higher yields.
Mar 5 2021, 08:48 AM
Quote
0.0469sec
0.88
7 queries
GZIP Disabled