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.