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 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.