This thread is to address a particular investment in Singapore REITS or S-REITS

The very basic things we should consider when investing in REITs are non other than DPU and yield.

DPU
DPU, the Distribution per Unit, is how much dividend we get for every unit/share of the REIT. This information can be easily found in the SGX portal @ www.sgx.com, under "Listed Companies" -> "Corporation Action". Example select CapitaMall Trust for Company Name, select Dividend for the Category. Following is what you should see for the DPU since January 2009 for CapitaMall Trust (CMT):



For SREITs, the DPU is given either quarterly (4 times per year) or semi-annually (2 times per year). From the above table, base on the Dates of Expiry or Date Payable, we can see that CapitaMall Trust distributes the DPU every quarter. Following are the details of the SREITs distribution frequency:


REIT Frequency of Distribution
AscendasReit -Quarterly
AIMSAMPIReit - Quarterly
AscottReit - Semi-Annually around Jul and Jan period.
Cache - Quarterly
Cambridge - Quarterly
CapitaComm - Semi-Annually around Jul and Jan period.
CapitaMall - Quarterly
CapitaRChina - Semi-Annually around Jul and Jan period.
CDL H-Trust - Semi-Annually around Jul and Jan period.
FirstREIT - Quarterly
Fortune (HK cents)- Semi-Annually around Jul and Jan period.
FrasersComm - Semi-Annually around Oct and Apr period.
FrasersCT - Quarterly
K-Reit - Semi-Annually around Jul and Jan period.
LippoMapleTrust - Quarterly
MapleTreeLog - Quarterly
PLife - Quarterly
Saizen - Semi-Annually around Jul and Jan period.
Saban - Quaterly
Starhill Gbl - Quarterly
Suntec - Quarterly




Yield
Yield is the annualised DPU divided by the share price. Annualised DPU means how much DPU we can get for the whole year. The usual practice in calculation of annualised DPU is to take the latest DPU and mulitply by number of distributions per year, i.e. X 4 for quarterly distribution, X 2 for semi-annual distribution.
Of course there are variations to the way in calculating yield. For a REIT giving a stable and consistent amount of DPU, the above method should be accurate. For a REIT with widely varying DPU every distribution, you may add up all the distributions per year, or half a year than multipy by 2, to get a more accurate estimate of the annualized DPU. From observation, the DPU of SREIT is fairly stable, with very little % variable QoQ, other than when there is a rights issue in which the DPU is diluted, or when a troubled REIT temporarily cuts the DPU.

Distributable Income
The DPU is derived from the distributable income of a REIT. The distributable income is how much cash the REIT is able to distribute. Now there is a subtle difference between the REIT and a normal company in terms of dividend payment. For a normal company, it may pay out a certain percentage of its net profit as dividend. But net profit may not consist of purely cash earnings, as some earnings that are posted as profit may not be cash income, example increase in valuation of a property. Similarly, decrease in valuation of a property may be posted as a loss in the calculation of net profit, but it does not mean a loss of cash. For REITs, the distributable income is derived from its cash earnings, so technically it is possible for a REIT to post a net loss when the decrease in valuation of its properties is much more than the rental income, and yet it is still able to have a postive distributable income.

The distributable income statement can be determined from the quartly earnings report of the REIT. You can get the quarterly report from the SGX portal, under "Listed Companies" -> "Company Announcements". Select "Last 3 Months" for the Announcement Period, and say for example "CapitaMall Trust" for the Company Name. Look out for something along the line of "MISCELLANEOUS :: 2009 THIRD QUARTER UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT".

Once you get hold of the report, look for the "Statement of Total Return & Distribution Statement". The Distribution Statement will tell you how much cash is available for distribution (Amount available for distribution to Unitholders), and how much cash is actually paid out for that quarter (Distributable income to Unitholders). The Distributable income to Unitholders divided by the total number of units/shares of the REIT will give you the DPU. The total number of units in issue by the REIT can be found out in the same report. Look for Total issued and issuable Units as at end of period under Details of any change in the issued and issuable Units.

By MAS regulation, a REIT is supposed to give out at least 90% of its amount available for distribution to Unitholders. Currently most of the REITs are giving out 100%, and as far as I know CDL HTrust has cut its distribution to 90% since early this year.

Of course there are other indicators such as NAV, Gearing, etc. Please pop into the following useful site.


http://sreitinvestor.blogspot.com/2009/11/...dpu-and_13.html

Witholding Taxes- As far as i know, if the REIT distributes at least 90% of its Distributable Income, there is NO withholding taxes
for individuals with regards to S-REITS, making it more attractive than M-REITS.


For news

http://sreit.reitdata.com/

For updated investment Data Summary

http://reitdata.com/


DISCUSS AND ENJOY!

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Added on September 11, 2012, 9:34 amREITs – Phillip

5 September 2012
Comments Off



Results Season Takeaways


Sector Overview


The Real Estate Investment Trust (REIT) Sector in our Singapore coverage consists of 23 REITs listed on Singapore exchange with a market capitalization of USD35 billion.

Majority of S-REITs turned in positive DPU

S-REIT’s dividend yield of 5.5% is less appealing than a quarter ago and there is limited upside given rich valuation based on +1 STD of P/B ratio


Earnings Surprise?


Across the S-REITs universe, majority of them turned in positive DPU. Negative rental reversion was not the main reason for the dip in DPU. The drag in DPU was caused by some other factors such as divestment of property assets, issuance of new units, on-going major asset enhancement works and amongst others.


Under our coverage, the DPU estimates for CDL HT, PLife REIT and Sabana REIT were largely in-line, forming 49%, 51% and 50% of our FY12 projections.


Capital management outlook

The variable-rate loans that are pegged to swap offer rates maintained flat

Liquidity is expected to remain healthy at current loan-to-deposit ratio (LDR) level of 91.9%

Financial position of REITs looks healthy, with comfortable gearing and longer weighted average debt to maturity


Recommendation


P/B ratio has progressively moved towards +1 SD and it had served as a strong resistance level for the past four years. From our viewpoint, it is going to be an uphill struggle to break above +1 STD. Given there is no major negative shocks from the western countries, P/B ratio should hover around this level as the current situation is not much better compared to two years before, undermined by lingering Euro debt problems and anaemic US growth.


For investors with mid- to long- term horizon, they may want to place their bet on Suntec REIT which is undergoing major makeover (phase 1-4) at Suntec City, stretching from Jun-12 to 2014. In this regard, return on investment from the refurbishments is likely to stream in in staggered phases. The tax savings from MBFC Phase I and potential ORQ could make up the loss for the drop in vacancy. Valuation is also undemanding and trading at a steep discount of 26.5% relative to Mapletree Commercial Trust (MCT) and Starhill Global REIT.

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Added on September 11, 2012, 9:38 amSingapore REITs Yield World’s Best Returns: Southeast Asia

By Pooja Thakur - Sep 5, 2012 9:29 AM GMT+0800

http://www.bloomberg.com/news/2012-09-04/s...heast-asia.html

Singapore’s real estate investment trusts, the best performing in the world this year, are luring investors after a shopping spree for properties across Asia gives them a broader stream of rental income.

Singapore’s $38 billion REIT market has returned an average 37 percent in 2012, twice the gains in the U.S., U.K. and Japan, according to data compiled by Bloomberg. Australia, the largest REIT market in the Asia-Pacific region with $86 billion, advanced 24 percent.

Growth among Singapore REITs was led by asset acquisitions and rental appreciation, with total rental revenue increasing 5.8 percent annually between 2008 and 2011, according to property broker CBRE Group Inc. In the first half, Singapore REITs were the second-most active purchasers after Japan in Asia, buying assets in Australia, China, Japan, Malaysia and South Korea, and accounting for 33 percent of acquisitions by the region’s REITs since 2009, CBRE said.

“Singapore remains amongst the last few AAA rated economies,” Priyaranjan Kumar, Singapore-based regional director of the capital markets group at broker Cushman & Wakefield, said in an interview. “Its real estate market has received unprecedented attention from most investors as it’s seen to offer a good proxy for the increasingly recognized strength of the Asian consumer.”

The gap between their yield and interest rates is double that in Australia, according to data compiled by Bloomberg. Property trusts in the island-state offer an average 413 basis- point income return premium relative to 10-year government bonds, while in Australia they average 192 basis points, data compiled by Bloomberg showed. A basis point is 0.01 percentage point.

Game Change

Singapore’s REITs have a dividend yield of 6.47 percent, according to data compiled by Bloomberg. That compares with to 4.97 percent in Hong Kong and 5.01 percent in Australia.

Economic growth in the Southeast Asian island-nation across the Johor Strait from Malaysia will probably accelerate to 3.9 percent next year from 2.7 percent in 2012, the International Monetary Fund forecast in its World Economic Outlook report in April. The advanced economies, including the U.S. and U.K., are estimated to expand 2 percent in 2013.

“The game has changed from capital appreciation to capital preservation,” Tim Gibson, a Singapore-based fund manager for Asia-Pacific property equities at Henderson Global Investors, said.

Budget Surplus

Singapore boasts the world’s biggest budget surplus relative to economic output, adding to demand for its currency as Europe’s fiscal woes roil global markets, the IMF said. The Singapore dollar is the best performer this year after the Philippine peso among the 11 most-traded Asian currencies tracked by Bloomberg. Singapore is one of seven nations with AAA ratings and stable outlooks from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

Tax incentives, which include exemptions on foreign income received by Singapore-listed REITs and distributing at least 90 percent of their income as dividends to unit holders, also helped boost demand.

Singapore offers a pipeline of assets from developers, a fair regulatory environment and a base of international investors and quality sponsors, Jason Kern, Hong Kong-based managing director and head of real estate and lodging advisory for Asia-Pacific at HSBC Holdings Plc, said in an interview. A sponsor is a developer with a stake in the REIT and whose properties form the trust’s pipeline of assets to be purchased.

Outperforming Stocks

“Coming out of the global financial crisis, investors have focused on transparent, predictable markets with sustainable income profiles,” Cushman’s Kumar said.

Singapore REITs also have a liquid secondary market, low transaction costs, and low leverage compared with Japan and other large REIT markets, Kumar added.

Four of the top 10 best-performing REITs with assets of more than $250 million in the region are from Singapore, according to data compiled by Bloomberg. Including dividend yields, Frasers Commercial Trust (FCOT) has returned 58 percent this year, AIMS AMP Capital Industrial REIT 48 percent, and Keppel Land Ltd.’s K-REIT Asia (KREIT) 46 percent.

Singapore REITs have outperformed the city-state’s benchmark Straits Times Index, which has climbed 13 percent this year. The 10-year government bond yield in Singapore was 1.38 percent as of Aug. 29. Adjusted for inflation, Singaporean savers currently receive a negative real return on their savings of 4.79 percent.

Market Recovery

The REIT market in the Asia-Pacific region is worth $205 billion, more than before the global financial crisis, according to the Asia Pacific Real Estate Association. European REITs are below the levels before the crisis, while North America, the world’s largest REIT market, has seen assets climb 82 percent from December 2007, the data showed.

Singapore is the region’s third-largest REIT market after Australia and Japan’s $45 billion, according to data compiled by Bloomberg.

The real estate market in Singapore recovered sharply after the first quarter of 2009, with prime rents and capital values increasing in excess of 60 percent over lows during the global financial crisis, according to New York-based Cushman.

Total investment turnover for Asian REITs reached US$7 billion during the first six months of the year, a 14 percent decline from the second half of 2011, on concerns over the eurozone debt crisis and the weaker outlook for the regional economy, Los Angeles-based CBRE said.

More Selective

“Although Asian REITs are expected to remain in buying mode, they will likely turn more selective towards future acquisitions, with yield enhancement and insulation from the global economic slowdown emerging as important criteria,” CBRE analysts Ada Choi and Leo Chung wrote in a report on Asia’s REIT market last month.

Earnings growth, or distribution per unit of Singapore REITs, will slow to 4 percent in the two years ending 2014, with the previous highs of a 13 percent growth rate between 2006 and 2008 appearing unachievable, Singapore-based analysts, led by Derek Tan, at DBS Group Holdings Ltd. said in an Aug. 21 note. Maturing portfolios will add to slowing growth, Tan said.

The outlook for Singapore’s commercial-leasing segment is becoming more challenging and the funding environment is likely to become more volatile over the next two years, Standard & Poor’s credit analyst Wee Khim Loy said in a note on Aug. 2. A dislocation in the credit markets may cause significant financial stress because the trusts rely on bank funding, the rating company said. Leverage levels of most office REITs could become weak if property values decline by as much as 10 percent, it said, maintaining a negative outlook for the office segment.

Uncertain Outlook

Still, Singapore REITs are well placed to weather tight operating conditions as the trusts have increased their financial flexibility and diversified their funding sources, the rating company said.

There remains ample room for future growth in REITs as prime rents remain 25 percent to 30 percent off their peak in the second quarter of 2008, Kumar said. At current yields, Singapore REITs are attractive for investors looking for total returns, he said.

“There are a lot of uncertainties in terms of economic outlook, so investors are actually looking for stability, defensive earnings,” Eddy Loh, a Singapore-based equity strategist for Asia at Barclays Plc, said in a phone interview. “Coupled with the fact that we still have a very low interest rate environment and the dividend yields for some of these REITs can go up 6 percent to 7 percent that seems to be very attractive to investors actually.” Loh is advising clients to bet on industrial and retail REITs.

REIT IPOs

The three-month Singapore Interbank Offered Rate is at an all-time low of just under 0.4 percent, compared with a peak of 3.56 percent in 2006, according to data compiled by Bloomberg.

The performance of real estate trusts is prompting a flurry of initial share sales by REITs that may top $2 billion, with as many as six companies planning to list their assets, according to HSBC’s Kern. That’s the most since 2010 when Singapore REITs raised $4.13 billion, according to data compiled by Bloomberg.

Ascendas Hospitality Trust (ASHT) raised about S$459 million ($369 million) in July, while Far East Organization, Singapore’s biggest closely held developer, drew S$717.6 million in an initial share sale of a hotel trust last month.

“If we think we are five years through a lost decade from a global economic standpoint, then we will see money flowing into REITs as people will continue to chase yields,” Gibson said. “Unless we see interest rates increasing at any point in time, then that will stop the party, but I don’t think you need to be dancing too close to the door just yet.”

To contact the reporter on this story: Pooja Thakur in Singapore at pthakur@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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Added on September 11, 2012, 9:47 amSREITs – Kim Eng

10 September 2012



The allure of S-REITs


Gravity Defying: Highest Yield-Spreads and Returns Globally.

S-REITs has risen 28.7% YTD, outperforming even major REITs markets such as US, Australia and Japan etc

We pointed out that S-REITs has one of the highest yield spreads globally in our previous report dated 3 Sep 2012. We took a deeper look at global/regional peers and below are our assumptions and proposed theses why this may be the case:


Why Asian REITs have much higher yield spreads.

The Asian REITs (S-REITs, J-REITs, and HK-REITs, excluding M-REITs), outperformed the non-Asian REITs (US-REITs, UK-REITs, A-REITs) in terms of yield spreads partly due to higher borrowing costs in the West (consequence of US/European deleveraging) and Australia.

With the exception of M-REITs, the Asian REITs incur average cost of borrowing (sector average) of ~1.5%-3.1%, much lower than the 5.5%-6.9% expensed by non-Asian REITs.

We noted that despite risk-free rates being low in the US (1.7%) and UK (1.8%), the actual borrowing costs to companies on the ground are relatively higher, compared to Asia. Western banks have become parsimonious in their lending vis-à-vis the robust loan growth situation amongst Asian banks.

From our observations, A-REITs and UK-REITs have average cost of borrowings much higher than normalized1cap rates, rendering DPU yields to be trading near cap-rates levels. As a result, yield spreads are much lower in comparison. For US-REITs, the high borrowing costs are partly offset by their higher cap rates, but this is still insufficient to cover the 178-211 bps yield spread lag behind Asian REITs (excluding M-REITs).

In M-REITs case, both the cost of borrowing and risk free rates are much higher than S-REITs, J-REITs and HK-REITs, resulting in much lower yield spreads.


What gives S-REITs the edge over other Asian REITs.


Higher Capitalization Rates:

On a sector basis, Singapore has relatively higher normalised2 cap rates (net property income that can be extracted per annum for each S$ dollar invested in investment properties), compared to Hong Kong and Japan.

For example in HK, cap rates (net basis) for prime office and prime retail buildings on a stabilized basis are around 3%-3.5% and 3.5%-4% respectively. However, in Singapore, cap rates for prime office and prime retail properties are at least 4.0% and 5.0% respectively.

This enables S-REITs to offer DPU yields of ~6% without trading at price-to-book discount (1.07x PBR). On the other hand, in order to offer DPU yields of ~5%, HK-REITs and J-REITs have to trade at ~0.8x PBR.


Unlikely interest rates hike until end 2014:

The MAS manages the Sing dollar’s strength by buying or selling currencies to keep its exchange rate against major currencies within a policy band, and by adjusting the band occasionally to steer the exchange rate. This FX-centred monetary policy regime means that Singapore’s short-term interest rates are essentially a function of US short-term interest rates.

Most economists do not expect any significant interest rates hike until end of 2014, following the US Fed’s intent to keep short-term interest rates near zero till then. If correct, this would imply that the cost of borrowings for S-REITs (some pegged to SIBOR) will stay at current low levels through 2012-2014.


Others reasons:

The strong SGD, chasing yields climate and lack of investable alternatives in the market are other factors providing price support for S-REITs. Investors are also drawn to the transparency and predictability of S-REIT dividends, particularly in the midst of the external market uncertainty



Yields can compress another 70-90 bps (Peak Valuations).


S-REITs are presently trading at 5.9% FY12 yield and a yield spread of 463 bps. We think there is downside room for another 70-90 bps compression in view of the following two reasons:

The S-REITs’ average and stabilized long-term yield spread (excluding the GFC period) is around ~370 bps.

The effective cap rate for S-REITs is around 5.3%. If we take cap rates as the floor for FY12 DPU yield (since overall S-REITs sector trading at P/B of ~1x), there is another 70 bps for yields to be compressed further.


A yield-spread compression of another 70-90 bps equates to an average price appreciation of 13%-19% for the sector.


Maintain OVERWEIGHT on S-REITs.

We conducted a 2QCY12 results round-up and target price update for S-REITs under our coverage. Most S-REITs reported 2QCY12 distributable incomes that were in-line with our forecasts. Moving forward, we expect DPU growth of 1.4%-9.6% per annum over FY11-FY13F (except Suntec REIT which will likely suffer DPU decline due to ongoing refurbishments at Suntec City).

Our top BUYS remain with the more defensible industrial and retail REITs with total returns of 10%-17%. We think their risk-reward proposition still appear favorable to yield-driven investors. Maintain OVERWEIGHT on the overall S-REITs sector.

____________________________________________________________________________________________________________

http://fifthperson.com/5-important-factors...st-in-any-reit/


If you’re looking for passive income, then investing in stocks that pay you a stable and growing dividend is something that you need to keep your eye open for. In that vein, REITs are great investments if you plan to invest for stable, passive income. Why so?

Firstly, REITs (or real estate investment trusts), as their name suggests, invest in real estate. And in land-scarce Singapore, property in general makes for a great long-term investment. Our country is also safe, politically stable, and well run (although some of us would disagree!) which means the value of our real estate is likely to hold and appreciate over time. And although many of our REITs also invest in assets overseas, most of them own properties that are mainly located in Singapore.
Secondly, REITs pay a high dividend yield. There are currently 35 REITs listed in Singapore with an average dividend yield of 7.5% (as at Feb 2016). With the current market downturn, some REITs have yields as high as 10% right now! One of the main reasons why REITs offer such high yields is because they enjoy tax-exempt status as long they pay out at least 90% of taxable income to shareholders. The tax breaks and high payouts mean higher yields for investors. The recent 2015 Singapore budget extended tax breaks for REITs for another five years.
Thirdly, REITs also pay their dividends (or distributions) four times a year. In comparison, a typical company usually only pays dividends once or twice a year. So if you’re an investor who wants to receive a steady, regular stream of passive income throughout the entire year, REITs will do very well for you.
So now that we’ve established that REITs offer a high, steady stream of passive income for investors, what are the important factors you need to look at before you invest in any particular REIT?

Here are five important factors you need to consider:

#1 Type of Industry
Not all REITs are made the same. Singapore REITs fall into six broad categories: office, retail, residential, healthcare, hospitality, and industrial. Each sector has its own specific characteristics that will affect a REIT’s growth, risk profile, and performance.

For example, office REITs like CapitaCommercial Trust, own office buildings. During a bull economy, businesses do well and demand for office space is high. This translates to higher rents and property income for the REIT. During a recession, the chips fall the other way – some businesses go bust, demand tumbles and office rents fall in tandem. The economic cycle largely affects the performance of an office REIT.

On the other hand, retail REITs like Starhill Global own shopping malls. Even in times of recession, many malls are usually still packed with shoppers and shop spaces are fully tenanted. Demand for retail space remains high which means rents and property income for the REIT barely drop.



All things equal, investing in a retail REIT is less volatile than investing in an office REIT. Of course, investors are aware of this and hence generally willing to pay higher prices for a retail REIT which lowers your dividend yield.

#2 Dividend Yield
This is probably the first ratio that every investor looks for when investing for dividends. While everyone enjoys a high dividend yield, what’s more important is to examine a REIT’s dividend track record.

Does a REIT pay a stable or rising dividend per share (or distributions per unit) year after year? Or does it tend to fluctuate every year?

A REIT that’s able to steadily grow its income and dividend per share year after year is understandably a more attractive investment than a REIT whose dividend payouts fluctuate all the time.



A REIT with a higher dividend yield doesn’t necessarily mean that it’s a “better” investment. For example, an office REIT usually has higher yields compared to a retail REIT, but office REITs are also more volatile and less resilient than retail REITs.

#3 Property Yield
Property yield is the amount of income a REIT can generate from a property. For example, if a property is worth 10 million dollars and earns $400K in rent in one year, then its property yield is 4%. Understandably, the higher the yield, the better. But what’s more important is to examine whether a REIT’s property yield is stable or rising over the years. A well-managed REIT will look for ways to continually improve its property yield.



One common way for a REIT to improve its property yield is to acquire yield-accretive properties. For example, if a REIT’s property yield is 4% and it acquires a new property that generates a 5% yield, the new acquisition will help to increase the REIT’s overall property yield.

#4 Gearing Ratio
Gearing ratio represents a REIT’s amount of debt over its total assets. The higher the ratio, the more debt a REIT has.

In Singapore, REITs are tightly regulated and only allowed to borrow up to 45% of their total assets. So if a REIT owns a billion dollars in assets, it can only borrow up to $450 million in loans. A REIT can borrow the money to fund new acquisitions for growth, upgrade its buildings, etc.


The lower the gearing ratio, the more conservative a REIT is. At the same time, a high gearing ratio does not necessarily mean that a REIT is a poor investment – it just means that a REIT is willing to take on more debt (and risk) for growth.

#5 P/B Ratio
P/B ratio measures a REIT’s share price against its net asset value (NAV) per share. Theoretically, a P/B ratio of 1 indicates a fair valuation. A ratio above 1 means a REIT is overvalued and a ratio below 1 means it is undervalued.

For example, if a REIT’s share price is $1 and its NAV per share is $2, then its P/B is 0.5 – essentially you’re only paying 50 cents for every dollar of net assets.



In practice though, you shouldn’t simply rely on P/B alone to value a REIT. Other important factors, like the ones we’ve discussed above and more, must also be taken into consideration when choosing to invest in a REIT.

While REITs in general are great investments for dividends, not all REITs are equal – it’s important to pick only the best-managed REITs that are able to pay you a long-term growing dividend and appreciate in value over time.

This post has been edited by prophetjul: Jun 12 2021, 08:34 AM

cw

Looks like we are still the few!

Anyway the purpose is to inform others know theres another REIT out there.
Maybe with better rewards?

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Added on September 13, 2012, 8:39 amHi

Welcome.

i will try to update the news.

However, you guys have to post so that there is a BUMP* on the thread.
Otherwise it will disappear into oblivion!

This post has been edited by prophetjul: Sep 13 2012, 08:39 AM

i sugggest that in buying REITs we tend to HOLD for the passive income from DPUs

In my trading S-REITs my total cost per trade is around

a) Brokerage - 0.6%
b)Stamp Duty - 0.1%
c) Clearing fee - 0.03%
d) Misc cost - Rm50

Total Approx cost = 1%

Unless you are actively trading the stocks, its nota real concern.

Compare the yields from M-REITS ....6%(before tax)

Vs S-REITs - There are quite a few still offering more than 7% DPU.

As for exchange rate, ONE of the purposes in buying singapore shares is i believe our Ringgit will continue to
DEpreciate against the SGD in the long term.

Industrial REITs – OCBC

27 September 2012
Comments Off



STILL HOT ON PORTFOLIO MANAGEMENT ACTIVITIES

Healthy debt maturity profile

Increased investment activity

Subsector yield remains attractive


Active capital management


Industrial landlords continue to be very engaged in their capital management activities. For 3Q to-date, we note that two industrial REITs, namely AIMS AMP Capital Industrial REIT and Mapletree Industrial REIT, had announced the issuance of fixed-rate notes, while Sabana REIT had entered into a financing agreement for S$258.6m additional Commodity Murabaha facilities. Based on our understanding, the proceeds from these issuances will be used to refinance part of their existing borrowings. This is in line with our view that the industrial REIT subsector’s debt maturity profile will remain healthy, with limited refinancing risks in the near term.


Pickup in acquisition activity


We also observe that there was a pickup in investment activity during the period. The most active REIT was Cambridge Industrial Trust, which announced the proposed acquisitions of Teban Gardens Crescent, 30 Marsiling Industrial Estate Road 8, and 11 Woodlands Walk for an aggregate consideration of S$97.3m. With just days to the close of 3Q, we estimate that the total subsector acquisition value for 3Q will be at S$182.9m. This significantly exceeds the S$66.0m acquisition size clocked in 2Q, albeit still lower than the S$678.2m value registered in 1Q. We are currently maintaining our view that the subsector acquisition activity is likely to be skewed more towards smaller REITs. We also believe that further acquisitions in the industrial space may possibly involve a combination of debt and equity, given that the subsector aggregate leverage is set to increase after funding committed acquisitions. In addition, some REITs (e.g. Ascendas REIT and Mapletree Logistics Trust) have also turned to capital recycling via divestments to enhance their portfolio returns, in line with our expectations.


Maintain OVERWEIGHT


We are retaining our OVERWEIGHT view on the industrial REIT subsector due to its high yields (7.0-7.1% for FY12-13F) and growth potential. Cache Logistics Trust remains our preferred pick, given its robust portfolio, healthy financial position and attractive forward DPU yield of 7.1%.

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Added on September 28, 2012, 9:35 amOffice REITs – OCBC

26 September 2012
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RENTAL DECLINES LIKELY SLOWING IN 3Q12

Rental decline likely slowing in 3Q12

Limited supply till 2H13

Maintain OVERWEIGHT




Office rentals decline likely to slow in 3Q12


We believe the office rentals are likely to show a more subdued dip in 3Q12 after three consecutive quarters of declines since 3Q11. Over 2Q12, Grade A office rentals fell 4.7% QoQ to S$10.10 which cumulated in an 8.7% decline over three quarters. Core CBD vacancies, however, showed a reversal from a rising trend in 2Q12 to register a 0.9 ppt dip to 8.4%. A similar picture was seen for islandwide vacancy rates which declined 0.9 ppt to 6.4% (end 2Q12) from 7.3% (end 1Q12). We expect a similar trend for vacancies in 3Q12 which would likely contribute to a muted rate of rental decline.


Office absorption coming in above expectations


The 2Q12 decline in vacancies was mostly due to net absorption coming in at ~470k sq ft – in line with our forecast but markedly above market expectations which had anticipated a softer demand on macro-economic weaknesses. Grade A capital values also dipped an estimated 2% QoQ marginally to $2,450 psf in 2Q12 (1Q12: S$2,500 psf) as investment sales slowed and market players adopted a wait and see attitude in light of the residual uncertainty in the macroeconomy.


Limited supply till 2H13


Looking ahead to the remainder of FY12, it is likely that a situation of limited office pipeline completion would ensue with only ~70k sq ft of office space slated for opening – a mixed use development in Upper Pickering St – which has been fully pre-leased to AGC. We see this dynamic continuing until mid 2013 when Asia Square T2 and The Metropolis T1&2 are slated for completion.


Maintain OVERWEIGHT on Office REITs


We note that, since we have upgraded Office REITs to OVERWEIGHT on 21 Aug 2012, our top pick CCT has appreciated 4.0% against the STI’s 0.2 gain%. We maintain an OVERWEIGHT rating on Office REITs. Our top picks in the sector are CCT [BUY, FV: S$1.53] and FCOT [BUY, FV: S$1.23].

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Added on September 28, 2012, 9:35 amhttp://sreit.reitdata.com/

This post has been edited by prophetjul: Sep 28 2012, 09:35 AM

This.

Do you see the trend of SGD vs MYR reversing anytime soon.....not for me.

If anything, we should see SGD=3MYR pretty soon.

5 years is pretty SOON? Dontchathink?

Considering in 1970, twas 1=1, 2012 is 1=2.5, 2017 = 3 ??????

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Added on October 2, 2012, 1:27 pmWhen i invested SREITs early this year, twas 1 = 2.42............ hmmmmm

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Added on October 2, 2012, 2:59 pmLooking at the online trading brokerage between UOB and SC, seems SC fees are cheaper.



This post has been edited by prophetjul: Oct 2 2012, 02:59 PM

Thanks anic.

Thanks for the link!
ITS VERY helpful!

On the opening of accounts in Singapore, do you just open over the counter?

ie with all your documents and $$$$?

No problem for Msian opening a bank account?

As i understand, local Msian banks do not allow funds transfer to a Sing account held by a Malaysian Citizen.
Can anyone verify that?

TIA

This post has been edited by prophetjul: Oct 3 2012, 09:47 AM

What stock brokers are you using?

i tried to TT some funds to my Msian friend in UK. It was not allowed.
Maybe only for education?

If you are using UOB Kay Hian, why didnt you use UOB for Banking?

For one, nominee means the stocks are under the banks name, you cannot vote at Agms.
If banks goes under, you may lose yer stocks. You stocks maybe used for shorting.

Danke!

http://www.remisiers.org/cms_images/resear...0313_update.pdf

REITs, Trusts and Stapled Securities


What is the difference between a REIT and a Property Trust? What about REITs and Stapled Securities?

Real Estate Investment Trusts (REITs), Property Trusts and Stapled Securities are three different vehicles that a security investor can get into property investments. But some investors are fond of using these terms loosely without understanding the fundamental differences between them. In fact, it is not uncommon to see even respected mainstream media confusing these terms and using them interchangeably and inappropriately.

It does not help that these terms are not regulated by the authorities. A REIT could call itself a Trust and similarly a property trust could call itself a REIT without having the obligation of operating as one as per the guidelines stipulated by regulators.

In this article we will present to you the key differences between these 3 types of securitized real estate investments and why it matters that you understand the nature of each carefully in order to make an informed investment decision.

REITs

In most jurisdictions, in order for a collective property investment to call itself a REIT it must pay out a minimum of 90 percent of its rental income to unit holders annually. This comes on the back of requirements of minimum assets sizes and restrictions on business activities. REITs are also subjected to limits on the amount of loans that they can take. In Singapore, the gearing limit is 35 percent for REITs with a credit rating and 60 percent for REITs that are unrated.

The regulations imposed on REIT are enforceable by the authorities and listed REITs are subjected to a high degree of transparency and scrutiny by the government and unit holders alike.

With so much restrictions, why does a collective property investment bother to go through the trouble of manifesting itself as a REIT? The short answer - favorable tax treatments. As long as a REIT satisfies the conditions stipulated by regulators, it is exempted from corporate taxes and duties that are usually leveled against property investments companies. This means more income from your properties overall despite the stricter amount of regulations that you will have to comply with

Property Trusts

Listed Property Trusts are also collective property investments that pool money from unit holders primarily to invest in income producing real estate. Rental income is similarly distributed to unit holders after deducting costs such as management fees and other overhead. Like REITs, Property Trusts are also by collective investment codes and other regulations that may be imposed by the bourses in which they are listed.

However, and herein the most important difference between REITs and Property Trusts, is that Property Trusts are not obligated to pay out a minimum amount of its rental income to unit holders. It is also not subjected to the leverage and asset size limits that REITs are imposed with. This means that should a Trust manager decide that business is bad for a particular year, it may not distribute any rental income and unit holders can be left with no income distribution for the units they hold at the end of the financial year. Property Trusts do not receive the same types of favorable tax rulings that REITs enjoy.

Examples of Property Trusts in Singapore that have often been confused as REITs by the media include the recently-listed Croesus Retail Trust and Perrenial China Retail Trust

Stapled Securities

In the context of securitized property investments, Stapled Securities are listed property investment securities that can be a bundle combination of either REITs, Property Trusts units or even property stocks.

This commonly happens when a securitized property investment vehicle decides to apply a REIT model to a certain segment of its property portfolio while taking on a Trust model for another segment to form a single trade-able unit known as the Stapled Security. In this manner, the manager of the Stapled Security need to be bound by REIT regulations only for the segment of the portfolio that adopts the REIT model. He is then free to pursue other plans for the properties that do not require compliance to REIT regulations. Hence a Stapled Security is obligated to pay a the minimum amount of rental to unit holders only for the properties that are adhering to a REIT structure.

An example of a Stapled Security is Singapore-listed CDL Hospitality Trusts which comprises of CDL Hospitality Real Estate Investment Trust and CDL Hospitality Business Trust. Another prominent example of a Stapled Security in this region is the KLCC REIT in Malaysia that comprises of REIT units and property stocks of KLCC Property Holdings Berhad (KLCCP).

Stapled Securities are similarly bound by listing and reporting regulations that may be imposed the the respective bourses.

These are the salient differences between a REIT, a Property Trust and a Stapled Security. Several more technical differences exist between the three but its full breadth will not be covered by this short article. But the main features covered above will help you to make a more informed decision as an investor.

Weighted Average Lease to Expiry (WALE)
One of the bigger risks of managing commercial properties is vacancy. When a property, or parts of a property, is left vacant for too long, property income and distribution to shareholders will be affected. This is where the metric WALE comes in handy as an assessment tool.

Weighted Average Lease to Expiry (WALE) is used to measure the overall tenancy risks of a particular property with multiple tenants and is used by REIT investors to assess the likelihood of a property being vacated. In other parts of the world, other abbreviations such as WALT (Weighted Average Lease Term) and WAULT (Weighted Average Unexpired Lease Term) are sometimes used and practically means the same thing. In the Asia Pacific region, investors are more accustomed to WALE.

WALE is measured across all the tenants remaining lease in years in a property and is weighted by either the tenant’s lettable area or the tenant’s income against the total combined area or income of the other tenants.

Most investors are of the opinion that the longer the WALE is the better. But depending on your investment objectives, this may not necessarily be the case:

Commercial buildings with long WALE, typically of being 5 years or more, usually have the commitments of large tenants such as government departments or multinational corporations. They have little to worry about in terms of vacancy risk but larger tenants would usually mean that the property will not be able to negotiate for rent hikes as much as a property with smaller tenants. Therefore there will be a limitation in terms of internal growth.

Commercial buildings with shorter WALE, typically of between 1 to 4 years, usually have smaller businesses as their tenants who do not commit to lease terms of longer than 5 years. There is higher vacancy risk as compared to a property with larger tenants. But commercial properties like these are generally able to manifest more robust growth internally through periodic rent hikes, resulting in better growth in property income. But do bear in mind that commercial properties with shorter WALE may face higher costs in terms of leasing agent fees, advertising fees and legal fees.

So if robust internal income growth is your preference, REITs with long WALE may not exactly work in your favor. But if you are after predictability and stability of income, REITs with longer WALE may be your best bet.

Singapore REITs Index Up 12.9 Percent in 2013

If you are investor holding on to a Singapore-listed REIT since the start of 2013, you will be sitting on average gains of about 12.9 percent so far this year. This is according to latest update by Singapore Exchange which shows that all 23 REITs listed on the Singapore bourse making gains for 2013 to date (With year-to-date taken as 17 May 2013).

REITs with the biggest gain in prices for 2013 so far are Hong Kong-focused Fortune REIT (34.81 percent) and healthcare landlords First REIT (34.43 percent) and Parkway Life REIT (25.58 percent). Also making respectable gains are Cambridge Industrial Trust (25.19 percent) and Keppel REIT (23.55 percent).

REITs with the weakest price gains this year to date are CapitaCommercial Trust (1.19 percent) CapitaRetail China Trust (4.86 percent) and Saizen REIT (4.97 percent). Performance for the rest of the Singapore-listed REITs are ranked below according to percentage change in price.

RANK REIT % CHANGE % DIV
1 FORTUNE REIT 34.81 3.87
2 FIRST REIT 34.43 3.12
3 PARKWAYLIFE REIT 25.58 3.85
4 CAMBRIDGE INDUSTRIAL TRUST 25.19 5.74
5 AIMS AMP CAPITAL INDUSTRIAL TRUST 24.08 4.89
6 KEPPEL REIT 23.55 3.69
7 MAPLETREE GREATER CHINA 21.51 NA
8 MAPLETREE COMMERCIAL TRUST 20.58 3.38
9 STARHILL GLOBAL REIT 19.75 4.99
10 FRASERS COMMERCIAL TRUST 19.70 4.52
11 SABANA REIT 18.86 6.96
12 MAPLETREE LOGISTICS TRUST 17.03 5.12
13 CACHE LOGISTICS TRUST 15.73 4.55
14 LIPPO MALLS INDONESIA RETAIL TRUST 15.31 5.58
15 ASCENDAS REIT 15.19 3.74
16 MAPLETREE INDUSTRIAL TRUST 14.34 5.94
17 SUNTEC REIT 12.84 4.90
18 FRASERS CENTREPOINT TRUST 12.50 4.63
19 CAPITAMALL TRUST 7.51 3.16
20 ASCOTT RESIDENCE TRUST 7.35 3.33
21 SAIZEN REIT 4.97 6.79
22 CAPITARETAIL CHINA TRUST 4.86 2.74
23 CAPITACOMMERCIAL TRUST 1.19 4.72



When ranked according to 12-month historical dividend distribution yields the REITs that came out on top are Sabana REIT (6.96 percent), Saizen REIT (6.79 percent) and Mapletree Industrial Trust (5.94 percent). Rank for Mapletree Greater China Commercial Trust is not available due to a lack of historical performance.


RANK REIT % CHANGE % DIV
1 SABANA REIT 18.86 6.96
2 SAIZEN REIT 4.97 6.79
3 MAPLETREE INDUSTRIAL TRUST 14.34 5.94
4 CAMBRIDGE INDUSTRIAL TRUST 25.19 5.74
5 LIPPO MALLS INDONESIA RETAIL TRUST 15.31 5.58
6 MAPLETREE LOGISTICS TRUST 17.03 5.12
7 STARHILL GLOBAL REIT 19.75 4.99
8 SUNTEC REIT 12.84 4.90
9 AIMS AMP CAPITAL INDUSTRIAL TRUST 24.08 4.89
10 CAPITACOMMERCIAL TRUST 1.19 4.72
11 FRASERS CENTREPOINT TRUST 12.50 4.63
12 CACHE LOGISTICS TRUST 15.73 4.55
13 FRASERS COMMERCIAL TRUST 19.70 4.52
14 FORTUNE REIT 34.81 3.87
15 PARKWAYLIFE REIT 25.58 3.85
16 ASCENDAS REIT 15.19 3.74
17 KEPPEL REIT 23.55 3.69
18 MAPLETREE COMMERCIAL TRUST 20.58 3.38
19 ASCOTT RESIDENCE TRUST 7.35 3.33
20 CAPITAMALL TRUST 7.51 3.16
21 FIRST REIT 34.43 3.12
22 CAPITARETAIL CHINA TRUST 4.86 2.74


Including dividends, S-REIT unit holders would have made an average gain of about 15.84 percent this year to date. All data have been compiled by Singapore Exchange from Bloomberg and ranked by REITSWEEK.

There has been a lot of money going into REITs looking for divs in the past year.

Its very difficult to find bargains in this sector anymore with the div yield compression

But then some funds maybe happy with 5%.

The healthcare sector in SG is very strong and attractive as far as the future is concerned.
Altho the div yield is lower, its very stable in the foreseeable future.

THE BURGEONING MARKET

S-REITs continue to perform

Sector currently trading at 1.24x P/B

Prefer S-REITs with strong fundamentals and compelling valuations


Firm 1Q13 performance; mostly in line


In our latest assessment of the S-REITs sector, we continue to see familiar trends. REIT managers have generally maintained firm growth in their trusts’ rental income, on the back of contributions from past investments and improved operational performance. Of the 16 SREITs under our coverage, 10 of them reported results that were in line, three exceeded our expectations, while the remaining three fell short of our forecasts.


Leasing activities remained largely healthy


1Q13 operating metrics for most of the S-REITs had stayed resilient. Average portfolio occupancy was stable at 96.9%, whereas the weighted average lease to expiry improved from 4.3 years in 4Q12 to 4.5 years. In addition, positive rental reversions were also clocked. This clearly illustrates the healthy rental market demand and proactive lease management on the part of the REIT managers, in our view.


Active capital management


We also observe that S-REITs have been very active in refinancing its existing debts and maintaining an optimal capital structure. There were a slew of private placements in 1Q, which helped keep the aggregate leverage healthy at 32.1%. Going forward, we believe that the sector’s aggregate leverage is set to trend upwards. As such, SREITs may continue to tap the equity capital market to fund their proposed investments. The cost of debt is expected to maintain at current levels or increase marginally, as S-REITs trade possibly higher interest costs for diversified funding sources, longer term debt, and/or an improvement in their unencumbered asset ratios.


Sector outlook remains sanguine


For 2013, we are maintaining our view that S-REITs are likely to continue to deliver firm performance. All the S-REITs are either involved in asset enhancement initiatives/development projects, pursuing yield-accretive acquisitions, or enhancing their portfolio metrics through active leasing efforts, which should lead to continued strong numbers for their financial scorecards. For our coverage, we expect the S-REITs to post 6.6% growth in aggregate DPU for the current fiscal year, before experiencing another 8.6% growth in the next year.


Prudent to be selective


Nevertheless, the S-REIT index has been enjoying a good run-up, raking up 36.7% gain in 2012 and another 12.7% increase YTD. Given that the S-REITs are now trading at a 24% premium to book value on average, we feel that it is prudent to be selective on S-REITs. We continue to prefer S-REITs with good growth potential, strong financial position and compelling valuations (relatively lower P/B and decent DPU yields). In this respect, we continue to pick CapitaCommercial Trust [BUY, S$1.80 FV], Fortune REIT [BUY, HK$8.64 FV] and Starhill Global REIT [BUY, S$1.05 FV] as our preferred BUYs. Reiterate our OVERWEIGHT view on the broader SREITs sector.

Singapore’s Market for the Week: REITs Nosedive

By Ser Jing Chong - May 25, 2013

One of the big stories for the week was the 7% plunge in Japan’s Nikkei 225 Index on Thursday. That came after reports of weak manufacturing activity in China surfaced together with news of a rise in interest rates in Japan, sparking fears of a halt in Japan’s attempted economic recovery under Abenomics.

In Singapore, the Straits Times Index (SGX: ^STI) was down for the week by 1.6% to 3,393 from last Friday’s close of 3,449. The index had more-or-less stayed flat from Monday to Wednesday before Thursday’s 1.8% plunge to 3,393, possibly due to contagion with the Nikkei’s fall.

For investors who are focused on Singapore’s blue chips, they might have missed an interesting development in locally-listed Real Estate Investment Trust (REITs) which might have been a result of the rise in interest rates in Japan – none of the 23 REITs listed on the Mainboard stock exchange ended with gains on Thursday.

The losses ranged from the 2.1% decline to $0.192 for the Japanese real estate-related Saizen REIT (SGX: DZ8U), to the 6% drop to $1.49 that commercial property REIT Frasers Commercial Trust (SGX: KT8U) suffered. Even Singapore’s oldest REIT, CapitaMall Trust (SGX: C38U) wasn’t spared as the retail property REIT went down by 5.7% to $2.17.

In Japan, a big part of Abenomics involves the buying of bonds by the Japanese government, which was expected to continue to lower interest rates. But, interest rates started spiking in the midst of the bond-buying programme, putting questions into the efficacy of quantitative easing and if the prevalent low interest rate environment can continue. To see how this relates to REITs, we have to look at their capital structure.

REITs carry significant debt on their balance sheets and because of legal requirements for them to distribute almost all of their income, they only have three options to deal with debt: 1) Refinance due-debts with new debt, 2) Raise additional cash through an offering of units or 3) the worst-case option of having to sell-off income producing assets for cash to pay up for loans that are due.

If interest rates start rising across the board, REITs are going to find debt a lot more expensive to obtain during refinancing. With expensive debt come higher interest payments and if rental incomes are kept constant, unit-holders will find themselves with a much smaller income.

That’s not all. Both Option 2) and 3) will only cause existing unit holders to suffer, either through dilution (for the second option), or from the loss of partial rental-income (for the third option). It’s not a good position to be in for a REIT investor if they are caught between these insufferable situations.

No one can calculate with mathematical precision the odds of those adverse events I described earlier. But, those risks are present and some of them have been raised by ratings agency Fitch Ratings in March this year. With leverage, comes risk and so, investors ought to tread carefully.

http://www.fool.sg/2013/05/singapores-mark...s76yhocs0070001

This post has been edited by prophetjul: May 26 2013, 04:51 PM

REITs – OSK DMG

Rising Risks But Slower Growth


In 1Q13, the FSTREI performed slightly better than STI, with a YTD appreciation of +12% vs the latter +7.5%. During this period, the low interest rate and high liquidity environment have prompted investors to continue their chase for yield plays. In this report, apart from providing a recap and an outlook on the sector, we also examine the effects in the event if any/all the three main drivers of the S-REITs sector changes.


Stable results – grew through AEIs and acquisitions. The latest SREITs results posted market cap weighted average growth of +3.5% y-o-y and +1.4% q-o-q in DPU for the sector. Among the 23 REITs (excluding MAGIC) listed in Singapore, only four REITs reported a lower y-o-y DPU. Among the REITs that recorded a positive growth in earnings, 61.1% of them grew as a result of AEIs (16.7%) and new acquisitions (44.4%).This is inline with our earlier view that most REITs will focus on growing their earnings inorganically, on the back of a low interest rate and high liquidity environment.


Flattish outlook in the various subsectors of SREITs. Although the rental market continues to be well-supported by the various industries, the outlook for possible positive reversion appears dampen in the industrial, hospitality and retail market as the global economy remains uncertain. Coupled with ample supply of commercial buildings over the next two years, we retained a flattish outlook on these sub-sectors. However, in a mid-term timeframe, we remain positive on the outlook of the Grade-A office sector in Singapore as demand remains limited coupled with an expected uplift in rental rates as the economy recovers.


Risk in the SREITs sector increases. Although we do not expect the i) global outlook, ii) high liquidity and iii) prolonged low interest rate environment to change in the near term, a closer examination indicated that if any of these factors are to change, it could potentially result in a sell-down in SREITs. In our view, given the high sector valuations, the risk-reward profile is less sanguine than before. We, therefore, introduce a new return gearing metric that takes these factors into account to study the relationship between share price, risk and return.


Maintain NEUTRAL on rich valuations; positive bias remains. On the back of i) flattish outlook in the various SREITs subsectors; ii) high valuations of S-REITs; iii) lack of growth catalysts in the near term; and iv) rising risks in the SREITs sector, we maintain our NEUTRAL view in the SREITs sector. However, positive bias remains if more liquidity flows into the market due to the latest QE program from Japan.

S-REIT: Are We Blinded By Yield?

In this low interest environment, investors have been actively seeking yield through investments in dividend paying stocks and REITs. However, the recent sell-off of Keppel REIT by Keppel Corp have sparked the question: Are we overpaying for S-REITs?

Sale Of K-Reit Stake
In the past week, the sale of Keppel Reit (K-Reit) by Keppel Corporation to Goldman Sachs has sparked the discussion of the overvaluation of S-REITs. This, the result of buying behaviour exhibited by investors chasing yield. This is the second divestment of K-Reit by Keppel Corp this year following the sale of stake through a placement to unknown buyers arranged by Barclays Bank.

Goldman Sach purchased 180 million units at $1.555 apiece which is a 6.7 percent stake in Keppel-REIT from Keppel Corp. The placement price of $1.555 was a 3.1 percent discount to the market price of $1.605 on the day the announcement was made. Based on the placement price of $1.555 and the dividend of $0.0777 per share paid to investors for FY2012, the implied yield for Goldman Sachs on K-Reit will be 5 percent compared to 4.84 percent retail investors based on the price of $1.605.

Liquidity And Chasing Yield
In the current low-interest environment with Singapore Government 10-year bonds yielding only 1.6 percent, investors in Singapore have been actively seeking yield from the market thus boosting liquidity. With such ample liquidity, Singapore has been attracting initial public offerings (IPOs) of various REITs and Business Trusts (BT) for IPOs.

This year alone, we saw the IPO of Mapletree Greater China Commercial Trust (REIT), Croesus Retail Trust (BT) and Asian Pay Television Trust (BT). Despite the large issues from these IPOs, more REIT IPOs are on the way.

Speculation is rife that companies such as SPH, OUE, Hoo Bee and Banyan Tree are looking to spin off assets to form the basis of REITs which will then list on the Singapore Exchange. A recent update from SPH mentioned that it expects to raise about $540 million from an asset spin-off (Paragon and the Clementi Mall) into a REIT. The IPO of this REIT is expected to be in early July.

Despite having new IPOs of REITs and BTs, there is still ample liquidity in the market which has led to the compression of yields of REITs. The compression was mainly attributed to the higher prices of REITs which have lead S-REITs to trade at an average of 1.24 times Price-to-Book based on reports by OCBC Investment Research.

K-REIT – Value Affirmation?
Looking back at K-REIT, the fact that it is able to attract institutional investors like Goldman Sachs can be viewed as value affirmation and a positive outlook to S-REITs.

K-Reit currently owns the highest-quality office portfolio among office Singapore Office REITs including prime office buildings such as Ocean Financial Centre, One Raffles Quay and Marina Bay Financial Centre Towers 1 and 2 which makes up 80 percent of its portfolio by net leasable area.

With its prime portfolio, K-REIT attracted major investors such as Temasek Holdings and Capital Group which owns a 2.8 and 1.33 percent stake in Keppel-REIT respectively. This affirms the value of K-Reit and its prospect but at the same time proves the point that it seems to be be currently overvalued by investors.



Source: FactSet, table on K-REIT’s brokers’ recommendations

Investing in a Low Yield Environment
When investing in REITs, it is important to consider the sponsor of the REITs, this particularly so after lessons learnt from the Lehman crisis. REITs with strong sponsors such as Mapletree Logistics Trust weathered through Lehman crisis despite the credit crunch. While REITs with weak sponsors such as MacarthurCook Industrial REIT(now known as AIMS AMP Capital Industrial Reit) almost went bust.



Source: FactSet. chart comparing the returns of AIMS AMP Capital Industrial REIT and Mapletree Logistics Trust (5 year horizon)

Bond ratings of a REIT is another factor to look at as it plays a huge role in the ability and cost for financing in REITs. Bond ratings and borrowing costs have an inverse relationship which means that the higher the credit rating of the company, the lower the cost of financing.

It is also favourable for REITs to obtain investment grade ratings as institutional investors like insurance companies have been constantly seeking for such bonds since the Lehman crisis as stricter risk mandates have kicked in. Having insurance companies as holders of the bonds are favourable as they tend to buy and hold to maturity which will bring stability to bond prices.

To sum up all the points, no matter how good the quality of the investment is, it will not be a good investment if you overpay.

Investors need to be prudent in picking the REITs not only in the quality of the assets but also the cost of investment. If Goldman Sachs is receiving 5 percent yield, why should retail investors settle for less?