REIT Financial News - K-REIT Asia Investor Meetings December 2009

For the full presentation slides of the K-REIT Asia Investor Meetings December 2009, see report.

Key points:

Property Portfolio
- Four prime grade A commercial office properties – Prudential Tower, Keppel Towers and GE Tower, Bugis Junction Towers and a one-third interest in One Raffles Quay (“ORQ”)
- Valuation of S$2.0bn as at 29 Sep 2009


Recent Activities
- 1 Sep 2009 – announced acquisition of six additional strata floors in Prudential Tower
- Purchase price of S$106.3mm – 14.7% discount to appraised value of S$124.5mm
- Guaranteed net property income yield of 5.2% for 5 years – income support of up to S$5.0mm per annum
- Gained majority control of the asset – strata ownership increased from approx. 44.4% to approx. 73.4%


Key Strengths
* Prime assets with blue-chip tenants
- Portfolio of four prime grade-A commercial office properties
- Strategically located in and around Singapore’s CBD
- Diverse blue-chip tenant base with long term leases

* Stable and growing income    
- Above-market portfolio occupancy of 94.9% as at 30 Sep 2009
- Stable income underpinned by long term leases (WALE of 5.3 years)
- Steady growth of average portfolio rent
- Income support protects against negative rental reversions – ORQ income support until end of 2011 and Prudential Tower’s net property income guarantee until end of 2014

* Strong capital position 
- Minimum refinancing risks – S$190.1mm maturing in May 2011
- Undrawn S$1.0bn MTN Programme               
- Low aggregate leverage of 9.1% post-rights issue
- Additional funding capacity of up to S$648mm post-rights issue

* Strong sponsorship
- One of Asia’s premier property companies with sizeable commercial asset base and projects under development in Singapore and across Asia
- Strong pan-Asian platform with extensive network and proven track record

* Robust financial performance
- YTD Sep 2009 distributable income up 25.4% y-o-y
- YTD Sep 2009 net property income up 27.3% y-o-y
- Latest portfolio valuation slightly down 6.3% from Dec 2008 vs. market expectations

Successful Completion the Rights Issue
* Offer Structure
- Underwritten renounceable 1-for 1 Rights Issue
- Approx. 666.7m Rights Units issued at S$0.93 per Rights Unit
- Raised gross proceeds of approximately S$620 million
- 110.6% subscribed

* Use of Proceeds
- Strengthen balance sheet
- Provide headroom for strategic acquisitions
- Finance asset enhancement initiative

Singapore Office Sector Outlook
* General consensus that recovery should kick in earlier in 2010 instead of 2011 as previously expected

* Singapore economy emerged from recession   
- 2nd consecutive quarter-on-quarter expansion in GDP
- Government forecast of 3 – 5% GDP growth in 2010
- 2009 GDP growth forecast of negative 2.0% to 2.5%

* Improving office sector fundamentals    
- Demand for office space has turned positive in 3Q09 after three quarters of negative growth
- Increase in leasing activities and requests for proposals
- Pick-up in office asset transactions

* Reduction in office supply
- Delays in construction of office projects have reduced supply
- New office supply from 4Q 2009-2016 of about 5.8mm sf (or 0.8mm sf per annum)
-- No new supply of office space in 2013 – 2015
- Trend of conversion of office space in central area to other uses such as residential, hotel may further trim supply



--------------------------------------

SM76VNK9RZVP

Commentary - The Dubai Crisis and Risk Aversion

I was rather shocked when I read the Straits Times headlines today about the Dubai Debt Crisis. I was not entirely surprised to see market react negatively, but was rather shock by the extent of sell-off in some market, especially Hong Kong. We have not seen a more than 1000 points drop in HSCI for quite sometime. Of course the drop in HSCI was probably linked to HSBC bank's large exposure to the middle east market. I was also shocked that some in the market has referred this as the "Financial Crisis Part II".

Of course some has argued that this is Dubai, and the USD80 billion is nothing compared to the losses during the Financial Crisis. While some has argued on the other hand that when the subprime crisis first surfaced in US, many have not believed it would lead to such extent of damage in Global financial systems and the economy.

The purpose of this posting is not to debate on whether the sell-down is overdone and we should make use of the opportunity to buy on dips, or whether there is going to be a big correction and we should turn towards risk aversion. Rather, as this is a blog about REITs, I will be touching on some of the possible things we can look out for if we want to assess the risk level of a particular REIT.

So what are the things to look out for if we want to assess how risky the REIT is?

Gearing
I have written something about gearing and gearing limit previously. REITs with high gearing, especially those very near the gearing limit, tend to be punished more by the market in times of crisis. Note also that low gearing does not mean the REIT is low risk as gearing is just one part of the picture. But high gearing is definitely link to high risk.

Short Term Debt vs Cash Level
Short term debt refers to debt that needs to be returned within one year. Cash level here refers to amount of cash or cash equivalent the REIT is holding. Comparison of these 2 figures is a good way to assess the risk level.

To find out short term debt, we can refer to the Aggregate amount of borrowings and debt securities section of the earnings report. Here we use the CMT Q3 2009 report for illustration:



For secured borrowings, the amount repayable within one year is S$125,000. For unsecured borrowings, the amount repayable within one year is S$315,000. So the total short term borrowings here is S$125,000 + S$315,000 = S$440,000.

The cash and cash equivalent can be found in the cash flow statement in the quarterly report. Again, using the CMT Q3 2009 report for illustration:



The last line of the cash flow statement will tell you the cash and cash equivalent at the end of the quarter, in this case it is S$363,736. If this figure is much less than the short term borrowing, it means that the REIT has to either refinance or raise equity via rights issue before the borrowing is due within a year. We know that in the time of crisis, both refinancing and equity raising are going to be difficult. Here we can also see that even if a REIT is low in gearing, if it has very low cash level and a very large short term borrowing, it will still run into serious problems in times of crisis.

Strength of the Sponsor
It will be advantageous for the REIT if it has a strong sponsor, whether in helping to source for refinancing or helping to support the equity raising directly by subscribing to the new shares. Sometimes the sponsor may also provide bridging loan directly to the REIT. For example, F&N Treasury provided a bridging loan to Frasers Commercial Trust earlier part of the year when its short term borrowing was due, and it has not come up with a sound recapitalization plan. If possible, we should also look at the financial status of the Sponsor, whether its cash level is able to support the REIT if there is really a need. For example, we know that Capitaland has its own rights issue to raise cash earlier this year. Recently, it has managed to raise some more cash through the listing of it subsidiary Capitamall Asia.

Sector
Currently the SREITs can be basically classified under the following sectors:
Hospitality, Office, Industrial, Retail, Healthcare.
In terms of risk level, usually the Hospitality sector will rank the highest, followed by Office and Industrial sectors, followed by Retail and Healthcare sectors.

Of course there may be other things to look into not mentioned here, and different investors may place emphasis in different things base on how they view the crisis. Some may even brush it off as a small blip. Anyway just to highlight again that this posting is not suggesting that this is going to be financial crisis part II, but rather it is just some suggestions on how to assess the risk level.

All About REIT - The Basics Part 4: Gearing Limit

Previously we have touched on the topic of gearing, about its definition and how to determine it from the balance sheet. In this posting I am going to touch on the closely related topic of gearing limit.

Now a REIT can fund the acquisition of a property by using equity or debt. Using equity usually means raising cash by issuing more shares either via rights issue or private placement. So using equity usually leads to near term dilution of DPU. Using debt, on the other hand, usually leads to increase in DPU, as long as rental yield of the acquired property is higher than the interest of the debt. So ideally, a REIT can keep borrowing more and more to fund more and more acquisitions to grow the DPU indefinitely. Of course in reality things do not happen this way as once the debt of the REIT is above its asset value, it will put the REIT in a very risky situation. The REIT may also face serious cash flow problem when loan interest starts to rise and rental yield starts to decline.

According to the MAS Code on Collective Investment Schemes, there is actually a gearing limit for the REITs. Following is the extract of the related section Aggregate Leverage Limit, under section 9.2:

"The total borrowings and deferred payments (together the “aggregate leverage”) of a property fund should not exceed 35% of the fund's deposited property. The aggregate leverage of a property fund may exceed 35% of the fund’s deposited property (up to a maximum of 60%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property fund should continue to maintain and disclose a credit rating so long as its aggregate leverage exceeds 35% of the fund’s deposited property."

Simply put it, if the REIT has a corporate rating by Fitch, Moody's or S&P, its gearing limit can go up to 60%. Otherwise it can only be up to 35%. The corporate rating may not be easily determined as it is not a standard reported item. You may need to look through the announcements or press releases, or in the earnings presentation slides, normally under the section on Capital Management. Fortunately we do not have to go through that for all the REITs as those which are currently or has ever been above 35% in gearing would definitely already have a corporate rating. Following table shows the corporate rating, if any, the latest gearing, and the gearing limit:

[Update as at 28 Nov 2009]

REIT	Rating	Gearing	Limit
AscendasReit	Baa1 - Moody	30.50%	60.00%
AscottReit	Baa3 - Moody	41.50%	60.00%
Cambridge	BBB- - S&P	42.60%	60.00%
CapitaRChina		34.40%	35.00%
CapitaComm	Baa2 - Moody	31.20%	60.00%
CDL H-Trust	BBB- - Fitch	20.20%	60.00%
CapitaMall	A2 - Moody	30.40%	60.00%
FirstReit		15.60%	35.00%
Fortune		25.70%	35.00%
FrasersComm	BB - S&P	38.90%	60.00%
FrasersCT	Baa1 - Moody	29.90%	60.00%
K-Reit	Baa3 - Moody	29.50%	60.00%
LippoMapleTrust		11.80%	35.00%
MapleTreeLog	Baa2 - Moody	38.10%	60.00%
MacCookReit	Caa1 - Moody	44.70%	60.00%
PLife	BBB - Fitch	23.20%	60.00%
Saizen	Caa1 - Moody	43.50%	60.00%
Starhill Gbl	Baa1 - Moody	27.20%	60.00%
Suntec	Baa1 - Moody	34.30%	60.00%

The highest gearing I have seen was that of MapleTree Logistic Trust in 2008, well above the 50% mark. This was later brought down to the 30++ % level after a rights issue exercise. So when the gearing of a REIT is near its limit, you will have to be prepared for possible recapitalization exercise (rights issue or private placement).

Related Posts

• All about REIT - The Basics Part 5: Sponsors
• All about REIT - The Basics Part 3: Gearing
• Other articles from All about REIT

Stock Movement - Starhill Global in narrow trading range (close 0.525, -0.005)

Starhill Global is relatively more stable today. It was in narrow trading range of 0.525 - 0.53 in the morning, and dropped to narrow trading range of 0.520 - 0.525 in the afternoon. Intraday low at 0.52 and intraday high at 0.535, closing at 0.525, -0.005 from previous day closing of 0.53. Trading volume was relatively less than past few days at 2,462,000 units. Once again Starhill Global investors will be asking, has the fierce selling the past few days finally over? Today's pattern seems to indicate stabilization. We will have to see how it turns out next week.

Stock Movement - Starhill Global finally breaks downtrend (close 0.53, +0.015)

Starhill Global finally breaks days of downtrend, closing 0.53, +0.015 from the previous day. Volume is still high at 4,922,000 units. Shortly after the opening, the share price touches intraday low of 0.515. In the afternoon, share price touches intraday high of 0.535 before closing at 0.53. Has the last few days of heavy selling finally ended? Does 0.515 marks the near term low for starhill? We will have to observe for a few more days to confirm.

Stock Movement - Starhill Global continues downtrend (close 0.53, -0.01)

Share price of Starhill Global Reit continues to trend down further today, closing at 0.53, down 0.01 from yesterday's 0.540. It touches an intraday low of 0.525 in the late afternoon. Volume is relatively high at 5,125,000 units.

As of this writing, there has not been any filing of report in SGX about cutting of stake by any substantial share holders.

Stock Movement - Kreit trends down after issue of rights units

Kreit-asia trends down to narrow trading range of 0.985 - 0.99 today, the first day of trading of rights units. It manages to close at 0.995. Intraday low was 0.985. The trading range is similar to that during the period when rights were being traded.

In the related reports, after the rights issue, Kreit units held by Keppel Land have increased to 45.38 % of total units in issue. Units held by Keppel Corp have increased to 75.87% of units in issue. Free float now stands at about 24.13%, which is towards the low side. You may view the related reports here.

REIT Financial News - Latest stake of Keppel Corp and Keppel Land in Kreit-asia after the rights issue

KEPPEL LAND - ACQUISITION OF UNITS IN K-REIT ASIA PURSUANT TO K-REIT ASIA’S UNDERWRITTEN AND RENOUNCEABLE RIGHTS ISSUE - see report

KEPPEL CORP - ACQUISITION OF UNITS IN K-REIT ASIA PURSUANT TO K-REIT ASIA’S UNDERWRITTEN AND RENOUNCEABLE RIGHTS ISSUE - see report

• The total number of units in K-REIT Asia deemed to be held by Keppel Land has increased to 606,259,751 units, which represents approximately 45.38% of the total number of issued units in K-REIT Asia as at 20 November 2009.
• The total number of units in K-REIT Asia deemed to be held by Keppel Corp (through KREI and Keppel Land Limited) has increased to 1,013,694,199 units, which represents
  approximately 75.87% of the total number of issued units in K-REIT Asia as at 20
  November 2009.
• Free float units is now about 24.13%
  
  
  

About a Reit - SUNTEC Reit and its deferred units

For those of you who have not been following SUNTEC Reit since its IPO days may not be aware that there are a certain number of deferred units that are to be issued to its Sponsors in instalments at later dates. Following is a related extract from its IPO prospects page ii:

"The Sponsor will be issued with additional Units (the “Deferred Units”) in part satisfaction of the purchase consideration for the Properties. The number of Deferred Units to be issued to the Sponsor will be based on the Offering Price. The Deferred Units will be issued in six equal instalments, with the first instalment to be issued on the date falling 42 months after the date of completion of the sale and purchase of the Properties and the rest semi-annually thereafter. Any change in rental rates, occupancy rates, and distributable income of Suntec REIT can affect the impact of any dilution in the yields of Suntec REIT arising from the issuance of the Deferred Units in the future."

These deferred units have been issued semi-annually since June 2008 at equal instalments of about 34,500,000 units. So far 3 instalments have been issued, and the 4th instalment should be issued in Dec 2009. To put things into perspective, the number of outstanding units upon IPO was about 1,287,000,000 units. From the latest quarterly earnings report in Sep 2009, the latest no. of units in issue is 1,628,774,865. Other than the deferred units, the latest units in issue includes management fee payable in units issued over the past quarters. Related information about the deferred units can also be found in the quarterly report under the section "Details of any changes in the units since the end of the previous period reported on" on page 13. If the final 3 instalments of deferred units are included, the total issued and issuable units should be 1,737,800,826.

Following are some possible impact of the deferred units that we should take note:

• Possible dilution of DPU. Come Dec 2009, the 4th instalment of 34,500,000 units implies an increase of about 2% over the existing outstanding units of 1,628,774,865. In this sense, the impact on DPU is rather small, especially if the REIT is able to continue to grow its distributable income.
• There is no lock-up arrangement in respect of Deferred Units receivable by the Sponsor (IPO prospectus page 38). This means that the sponsors can choose to sell the deferred units immediately after issue. There is no obligation to hold the units for a certain period of time. Checking the price trend and trading volume shortly after the deferred units were previously issued may give some idea whether this was happening. Any reports of cutting in stake by substantial shareholders shortly after the deferred units were issued may also shed some light, though this will depend on whether the sponsors were still holding more than 5% of outstanding shares. Another factor to consider is that with the IPO price at $1 per unit, they would have paid $1 per unit for the deferred units if they were issued during IPO.
  
• These deferred units may introduce some level of complexity if there is going to be any rights issue now. Should the sponsors get the rights for deferred units that have not been issued to them? If no, then the sponsors may lose out. If yes, then these rights units will come into the market before their parent units are issued. The REIT has no refinancing issue until 2011, while the last instalment of the deferred units will be issued in Dec 2010. Now this is purely speculation on my part: there may not be rights issue until 2011 because of these deferred units, unless the management can think of a good way to resolve the above issues.
  

REIT Financial News - ISSUE OF 666,703,965 NEW UNITS IN K-REIT ASIA

UNDERWRITTEN RENOUNCEABLE RIGHTS ISSUE - ISSUE OF 666,703,965 NEW UNITS IN K-REIT ASIA - see report

USE OF PROCEEDS FROM THE UNDERWRITTEN RENOUNCEABLE RIGHTS ISSUE - see report

• 666,703,965 new units issued today, bringing the total number of units in K-REIT Asia in issue to 1,336,023,351
• A total of 9,324,716 Rights Units which were not validly accepted were allotted to satisfy excess applications. No Excess Rights Units were allotted to Substantial Unitholders, including Keppel Corporation Limited and Keppel Land Limited and their respective wholly-owned subsidiaries, or directors of the Manager.
• The Rights Units will be listed and quoted on the Main Board of Singapore Exchange Securities Trading Limited with effect from 9.00 a.m. on 23 November 2009.
• Out of the net proceeds of approximately S$616.0 million from the Rights Issue, S$99.7 million has been used today to fully repay a bridging loan facility of S$110.0 million from Kephinance Investment Pte Ltd which was partially drawn down on 2 November 2009 for the purpose of financing the acquisition of levels 20 to 25 of the property known as “Prudential Tower”
  
  
  
  

Stock Movement - Starhill Global share price drops about 4.3% after acquisition announcement

Starhill Global Reit closes at 0.545 one day after announcement of acquisitions of the 1 Australian and 2 Malaysian properties on Nov 18 (after market closes). Starhill Global was trading around the 0.565 - 0.57 range before the announcement. As of this writing on Nov 20, the share price has touch a day low of 0.53.

Did some back of the envelope calculations after the announcement on Nov 18, and thought it was quite a good deal since it is yield-accretive, and the malaysian properties were at a rather large discount to their latest valuation. Furthermore, Starhill Global still has about SGD 300 million cash from the rights issue. To date, there has not been any SGX announcements about cutting of stake by any substantial share holder.

Wanted to know the reasons for the sell down, but was unable to find any conclusive ones. Read some analyst reports and the following are 2 sore points to the acquisitions:

1. There is not enough details about the funding of the Malaysian properties, which have a price tag of SGD 423.3 million. Accord to the reports, the market may not be comfortable with this overhang.
2. The market may prefer REITs that are pure local play rather than such a geographically diversified portfolio, which will now include properties in Singapore, China, Japan, Australia, and Malaysia.

To me, the above reasons are sentiment swinging, and are rather difficult to be factored into the share price. Looking purely at the numbers, the latest quarterly DPU of 0.95 cents implies an annual yield of around 7% at the current price of 0.53 to 0.54, before factoring in the contribution to DPU by the new properties. There should be some support to share price when the yield becomes unreasonably high.

All about REIT - The Basics Part 3: Gearing

Previously I have talked about DPU and yield, and whether we should always go for higher yielding REITs. In this posting I am going to talk about another important factor to consider in REIT investment - gearing.

Technically gearing is calculated by the total debts over the total assets. The total debts consists of short-term debts (to be repaid in less than a year) and long-term debts (to be repaid more than a year later). For some REITs, we may have to factor in Debt Securities such as the Convertible Bonds issued. Information on debts and assets can be found in the quarterly earnings or annual report, under the Balance Sheet statement.

Again we use the CMT quarterly statement as for illustration purpose. Following is the CMT Q3 2009 balance sheet:


(Click on image to enlarge)

From the balance sheet:
Total assets = Total non-current assets + Total current assets
= 7,070,514 + 377,484
= 7,447,998

Note that some balance sheets may quote the total assets directly.

To derive the total debts, look for Short term borrowings under Current Liabilities, and Long term borrowings under Non-current Liabilities add them up. In the of CMT, we also need to add the item Debt Securities under Non-current Liabilities. Debt securities in this case relates mainly to the Convertible Bonds issued by CMT for funding purpose.

Total debts = Short term borrowings + Long term borrowings + Debt Securities
= 440,000 + 1,148,029 + 609,827
= 2,197,856

We can also find out the total debts from the Aggregate amount of borrowings and debt securities section of the earnings report if it is available. Again we use the CMT report for illustration.



Here we can straight away get the total debts from the Grand total = 2,197,856

So latest gearing for CMT is as follows:
Gearing = Total Debts/Total Assets
= 2,197,856/7,447,998 x 100%
= 29.5%

So far I have covered the technical definition of gearing and how to derive it from the earnings report. I shall touch on more about effect of gearing on REITs in future postings.

Related Posts

• All About REIT - The Basics Part 4: Gearing Limit
• All about REIT - The Basics Part 2: More about Yield
• Other articles from All about REIT

REIT Financial News - Starhill Global Reit to acquire 1 Australian and 2 Malaysian Properties

Starhill Global REIT proposes to acquire David Jones Building in Perth for S$148.0 million; And enters into heads of agreement to acquire Starhill Gallery and Lot 10 in Malaysia for S$423.3 million


Starhill Global REIT proposes to acquire David Jones Building located in Perth, Australia.


Entry into Heads of Agreement for acquisition of Starhill Gallery and Lot 10

Commentary - MacArthur, Cambridge, and a joke

I read with interest the response of MI-REIT to CIT filed in SGX, in that MI-REIT was rather direct in finger pointing the current CEO of CITM, who was also the previous CEO of MI-REIT, as the cause of the major problems MI-REIT is currently facing. The root of the problem, according to the response, was because this previous CEO has decided to purchase the S$90.2 million property in International Business Park before securing any funding. This has actually reminded me of a joke I heard recently:

A new CEO was about to take over a company, and he asked the previous CEO for advice. The previous CEO handed him 3 letters numbered from 1 to 3. The new CEO was asked to open one letter, in sequence, each time the company faces big problems that cause the company share price to plunge deeply . So the new CEO took over the company, and all was well for the first 6 months. Then, problems started to surface, causing the share price to plunge deeply. Then he remembered the letters, and so he opened letter No. 1. The letter says "Blame the previous CEO". So the new CEO did accordly, and it really helped the share price to rebound, and all was well again.

After another 6 months, problems arise again, sending the share price all the way down. So the new CEO opened letter No. 2. The letter says "Reorganize". So he did accordingly, reorganizing all the departments he can find in the company. Again, it really helped the share price to rebound again.

Another 6 months passed by, and once again the share price plunges due to more problems. So the CEO opened letter No. 3. The letter says "Prepare another 3 letters" ...

In this MacArthur vs Cambridge saga, so far we have seen "Blame the previous CEO". If M&A really takes place, then we will see "Reorganize". How about "Prepare another 3 letters"?

All about REIT - The Basics Part 2: More about Yield

In the last posting, I have talked about the basic idea regarding DPU and yield. In this posting I shall touch on more on the topic about yield.

Do we always go for the REIT with the highest yield?
On the surface it seems that the higher the yield the better the deal. For a 10% yielding REIT, we can get back the capital from the DPU in 10 years time. For a 5% yielding REIT, it will take 20 years. So why not go the highest yielding REIT? Well if only things were that easy. As the saying goes, there is no free lunch, and so there are always reasons why a REIT has a much higher yield than its peers. In general we can say that the higher the yield the higher the risk, and so we should always do our homework well when we go for a very high yielding stock. We have to look at the reasons and decide whether we want to take the risk.

So what are some of the reasons for REITs to give a very high yield? Well the yield of a REIT is closely tied to its share price, the denominator in the yield calculation. So another way to phrase this question is what are some of the reasons for the market to view a REIT as risky and hence will only pay a lower price for it? I shall not go into details here for the time being, as this is another big topic to be covered. For a brief mention, some possible reasons could be high debt level or gearing incurred by the REIT, sector risk, country risk, etc. An example of sector risk could be during the outbreak of H1N1 when less people travelled, hospitality REITs were affected much more than REITs of other sectors. An example of country risk could be that the REIT has properties primary in a single country, and that country could be facing some political instability.

Actual Property Yield
Was pondering whether to cover this topic as it might cause confusion, but decided to briefly mention this so that the topic on yield is more complete. So far the yield mentioned in this posting is over the share price of the REIT. The actual property yield, on the other hand, is the rental income of the properties over the price of the properties. Now this is one way in which investing in a physical property is different from investing in a REIT. When we buy a private condo for say SGD 500,000, and we collect rent it out for SGD 2,000 per month, the rental yield is 4.8%. To make things simple, I have not factored in debt and interest incurred in buying the property. But when we invest in a REIT, the yield we get is not the actual rental yield, but is dependent on whether market is paying a premium or discount to the NAV (Net Asset Value) of the REIT. NAV of a REIT is its assets minus its liabilities. If the share price of a REIT is lower than its NAV, the yield over the share price we get is higher than the actual rental income yield of the physical properties of the REIT. Again this is a very simplistic way to look at it as the assets part of the NAV may not be entirely made up of physical properties. Some REITs may have stakes in a property fund or another REIT, which in turn has its own unit price.

So why should we bother about the actual physical property yield since we are paying for the share and not for the property? Well this will be a factor to consider if the REIT is acquiring a property. Usually the rental yield of the new property will be mentioned. Base on this information, we should be able to calculate the how it is going to affect the DPU yield we get, i.e. whether it is going to be yield-accretive, hence increasing the DPU we get, or otherwise.

Related Posts

• All about REIT - The Basics Part 1: DPU and Yield
• All about REIT - The Basics Part 3: Gearing
• Other articles from All about REIT

All about REIT - The Basics Part 1: DPU and Yield

I am starting this series of postings to introduce terms and concepts related to REITs, as well as where we can find the related information.

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):

Company Name	Expiry Date	Record Date	Date Paid/Payable	Particulars
CAPITAMALL TRUST	28 Oct 2009	30 Oct 2009	26 Nov 2009	010709-300909 SGD 0.0228 LESS TAX
CAPITAMALL TRUST	28 Oct 2009	30 Oct 2009	26 Nov 2009	010709-300909 SGD 0.0007 TAX EXEMPT
CAPITAMALL TRUST	30 Jul 2009	3 Aug 2009	28 Aug 2009	010409-300609 SGD 0.0001 TAX EXEMPT
CAPITAMALL TRUST	30 Jul 2009	3 Aug 2009	28 Aug 2009	010409-300609 SGD 0.0006
CAPITAMALL TRUST	30 Jul 2009	3 Aug 2009	28 Aug 2009	010409-300609 SGD 0.0206 LESS TAX
CAPITAMALL TRUST	23 Apr 2009	27 Apr 2009	28 May 2009	010109-310309 SGD 0.0004
CAPITAMALL TRUST	23 Apr 2009	27 Apr 2009	28 May 2009	010109-310309 SGD 0.0192 LESS TAX
CAPITAMALL TRUST	23 Apr 2009	27 Apr 2009	28 May 2009	010109-310309 SGD 0.0001 TAX EXEMPT
CAPITAMALL TRUST	30 Jan 2009	3 Feb 2009	27 Feb 2009	011008-311208 SGD 0.0361 LESS TAX
CAPITAMALL TRUST	30 Jan 2009	3 Feb 2009	27 Feb 2009	011008-311208 SGD 0.0001 TAX EXEMPT
CAPITAMALL TRUST	30 Jan 2009	3 Feb 2009	27 Feb 2009	011008-311208 SGD 0.0003

So from the above, the latest DPU with Expiry Date on 28 OCT 2009 = SGD 0.0228 + SGD 0.0007 = SGD 0.0235, which is SGD 23.5 per lot of 1000 units.

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:

[Update as at 10 Nov 2010]
(For latest DPU Information please visit the DPU Information Page)

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.
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. So for the CMT example above the latest estimated annualised DPU = SGD 0.0235 X 4 = SGD 0.094, OR SGD 94 per lot. From the SGX portal, under "Prices, Indices, Statistics" -> "REITs", we find that the latest closing price of CMT (on 13 Nov 2009) is 1.68. So the latest yield for CMT = 0.094/1.68 = 5.595%.

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.

Related Posts

• All about REIT - The Basics Part 2: More about Yield 
• Other articles from All about REIT
• DPU Information Page

Introduction and recent trend of SREITs

I am starting this blog mainly to share my experiences and views on investing/trading in SREIT (Singapore Real Estate Investment Trust) listed in the Singapore Exchange (SGX).

REIT has always been a favourite investment sector for me. I am more or less a follower of Warren Buffet's investment principles, and one of his principles is to invest in business that can be easily understood. To me REITs is relatively easier to understand than companies in other sectors. In a way it is analogous to buying a private property, getting finance from the bank, and renting out the property to generate cash flow. Of course an actual REIT is much more complex than that, but the basic idea of acquisition, financing, and cash flow is there.

During the peak of the financial crisis from OCT 2008 to MARCH 2009, share prices of most, if not all the REITs were beaten down so much that the yield has risen to unbelievable 2 digit levels. The main reason was the credit crunch, and investors were worried about whether the REITs were able to refinance their debts. So some of the REITs with high gearing were giving yields of up to 20% to 30%, and their price were as low as 20% to 30% of the NAV. Even the larger and more stable REITs like CapitaMall Trust and Ascendas Reit were not spared, yielding more than 10% at some point in time.

Of course things have come to pass now. Credit flow is returning to normal and most of the REITs have improved their balance sheets through rights issue or private placement. Even at the worst of the crisis, none of the REITs was unable to continue as a ongoing concern due to refinancing issues. The primary owner/sponser of a couple of REITs changed hands. Allco Commercial Trust becomes Frasers Commercial Trust after F&N acquired the major stake, and Macquarie Prime Reit becomes Starhill Global after being sold to YTL. The only loan default I know only happens this month, when Saizan Reit defaulted on a 7.25 b yen loan. But the CEO and some analysts say that this is unlikely to impact its operation.

Currently the yields of most of the REITs are trending towards the 5% to 6% levels, and 'blue chip' REITs like CMT and Ascendas are now trading at a premium or close to their NAV. Sometime back MapleTree Investments, the property arm of Temasek Holdings and sponsor of the MapleTree Logistics Trust, revealed that they are considering injecting their commercial properties such as Vivo City into a REIT when yield levels are down to 5% level. I take this message as a signal of rising confidence in REITs by the market. To me, with the interest rates of bank deposits continue to be low, and the market continue to trade side ways, it is a good idea to hold on to some REITs as it will continue to generate attractive cash flow while waiting for a clearer picture in the market.