Commentary - The Liquidity Pacifier

I have to say in advance that this posting has nothing much to do with Reits or investment. Just some interesting thoughts with a little connection to the general market. You may safely skip this if you want. Here goes:

I have a child who is currently about 3 years old. When she was still a baby, we have given her the pacifier. I have to say the pacifier is really one of the greatest invention of mankind. It works much better than expected, helping her to sleep better and cry less. However, we also understand that there are some potential negative effects associated with prolong use of the pacific, like dental and speech problems. So recently, we have decided to take away the pacifier from her. She has been receiving cold turkey treatment for the past few days and I can assure you that it is not a pleasant experience for us all. She will cry for the pacifier before she sleeps. She will cry for the pacifier in the middle of the night when she realizes there is no pacifier, and this can happen 2 or 3 times over the night. She will cry for the pacifier when she wakes up in the morning. When it comes to her afternoon nap, all the above will go through one more cycle.

So what has all these got to do with the market? Well in 2008 after the fall of Lehman, Central banks all over the world, especially the US, have to inject liquidity into the markets to 'pacific' them. In 2009, we find that the liquidity injection has worked much better than most of us have thought. Not only has it pacified the market, it has brought about a super strong rally. But the Central banks are also well aware of the prolong effect of too much liquidity in the market, such as inflation and creation of asset bubbles. So one of these days, they will definitely need to pluck out the 'liquidity pacifier'. When that happens, we have to see whether things are going to be ugly. But to take a positive view over this, we are taking the pacifier from our girl because we feel that she is ready for the next phase of her life. So it may not be a bad thing after all because the world economy may be ready by then for the next phase of growth without the 'liquidity pacifier'.

REIT Financial News - Moody's upgrades AIMS-AMP Capital Industrial Reit (Formerly MI-REIT) to Ba2

Moody's Investors Service upgraded AIMS-AMP Capital Industrial REIT (formerly known as MacarthurCook Industsrial REIT)'s corporate family rating to Ba2 from Caa1. See report.

Key Points

• Corporate rating upgraded from Caa1 to Ba2.
• Outlook stable.
• Upgrade reflects the Reit's remarkably improved liquidity profile and capital structure following the successful completion of its recapitalization plan and refinance of the maturing Singapore dollar loan.
  

REIT Financial News - MAPLETREELOG ACQUIRES 9th PROPERTY IN JAPAN FOR S$68 MILLION

MAPLETREELOG ACQUIRES 9th PROPERTY IN JAPAN FOR S$68 MILLION. See report and presentation slides.

Key Points

• The property is located in Chiba, Japan and is leased to a major Japanese MNC with remaining fixed lease of about 8 years.
  
• The property yield of the Property at 7.26% is higher than the implied property yield of the existing Japan portfolio of 4.5%.
• The acquisition will be accretive to MapletreeLog’s distribution per unit (“DPU”).
• The acquisition is expected to be completed in 1Q2010.
• The acquisition will be fully funded by debt.
• This will be the 9th property in Japan, and the 83rd property of its overall portfolio.
• With this acquisition, the geographical allocation by gross revenue of the portfolio for Japanese properties will be increased from 15.7% to 17.8%. This ranks after Singapore (52.1%) and Hong Kong (19%).

Author's Note
The Reit has, through a private placement exercise in Nov 2009, issued 115,000,000 New Units at an issue price of S$0.69 per New Unit. The proceeds of about S$79.4 million was used to fully finance the acquisitions of 2 warehouses in Singapore (S$78m). The resulting debt headroom created will help to fund this latest acquisition fully by debt with minimal impact to its gearing. The DPU should increase, but since the acquisition of the Singapore properties were completed in middle of Dec 2009, while acquisition of the Japanese properties were expected to be completed in 1Q2010, the increase will only be fully felt in distributions after Q1 2010.

Stock Movement - Starhill Global Reit in Top 10 Volume Today

Starhill Global Reit is within the top 10 counters by volume today. It closes at 0.510, -0.005 from the previous trading day. Volume was unusually high at about 23,109,000 units, almost 10 times its 52 wk average volume of 2,319,000 units (source sharejunction). For most part of the afternoon the buy - sell queues were maintained at 0.505 - 0.510, but there was no single transaction at 0.505.

Author's Note
Since the Reit's announcement of acquisition of properties in the middle of Nov 2009, its stock price has not been performing well for the past few weeks. For a few times it has went up to 0.530 - 0.540 level, only to be sold down to the 0.510 - 0.515 level again. Perhaps market is waiting for clearer details of its funding for the acquisition of the Malaysian properties, Starhill Gallery and Lot 10, before the price is stabilized.

REIT Financial News - MacarthurCook Industrial REIT becomes AIMS-AMP Capital Industrial REIT

MacarthurCook Industrial Reit has been renamed AIMS-AMP Capital Industrial REIT. The name change was effective last Thursday (Dec 24). See related report.

Today is the first day the Reit is being traded under this new counter name.

The 975,627,332 new units from the recent rights issue exercise also started trading today. The total number of units in issue for the Reit is now 1,463,440,998 Units. See related report.

From the report:
"The Rights Units will rank pari passu in all respects with the existing Units in issue as at the date of issue of the Rights Units, including the right to any distributions which may accrue for the period from 24 November 2009 to 31 December 2009, as well as all distributions thereafter."

All about REIT - REIT as a Property Developer

The main business of a REIT is in acquiring and renting out of income producing properties. There is a related paragraph in the MAS Code on Collective Investment Schemes about this in section 7.1:
"... at least 75% of the property fund’s deposited property should be invested in income-producing real estate"

Deposited property is defined in section 2.2 as follows:
"Deposited property means the total value of the underlying assets of the
scheme.". In another words, it is the total asset value of the REIT.

This guideline helps to ensure that a REIT is primarily a property landlord, such that it is able to distribute a stable and regular dividend from its rental income. However, other than being a property landlord, a REIT can also be a property developer. Following are 3 related paragraphs about this in section 7.1 of the MAS code:

"A property fund should not undertake property development activities whether on its own, in a joint venture with others, or by investing in unlisted property development companies, unless the property fund intends to hold the developed property upon completion. For this purpose, property development activities do not include refurbishment, retrofitting and renovations;"

"A property fund should not invest in vacant land and mortgages (except for mortgage-backed securities). This prohibition does not prevent a property fund from investing in real estate to be built on vacant land that has been approved for development or other uncompleted property developments;"

"The total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed 10% of the property fund’s deposited property;"

Simply put, the REIT can engage in property development activities of up to 10% of its total asset value, but it has to hold the developed property upon completion. As 10% is a rather low level, a REIT can only engage in significant property development activities when its total asset value is large enough in size.

Ascendas Reit and its Built-To-Suit projects
As of this writing, the only REIT I am aware that has actually engaged in property development activities is Ascendas Reit. Its total asset value is around $4.6 billion, a large enough size for significant property development activities. It has completed some development works in Changi Business Park. It is also involved in some Built-To-Suit (BTS) projects.

A simple definition of Built-To-Suit:
"It is an arrangement whereby a landowner offers to pay to construct on his or her land a building specified by a potential tenant, and then to lease land and building to the tenant."

This a actually a win-win situation for the landlord and the tenant. The tenant gets exactly what he wants for the design of the property, while the landlord already has a committed tenant before the building is built. Recently, A-Reit has completed a BTS project for Built-to-Suit for Expeditors Singapore. The property is a part 2-storey and part 4-storey logistics facility at Plot 6 of Airport Logistics Park, 100% of which will be leased to Expeditors Singapore. The development cost of this property is S$24.4 million.

Currently it is engaged in a more significant BTS project for Singtel, the development of a 9-storey Hi-Tech Industrial building at Kim Chuan. There will be a 20 + 10 years lease with annual rental escalation. The estimated development cost is S$175.4 million.

To study the impact of property development on the Reit, we can take note of the development cost of the property, and monitor the subsequent asset valuation of the property. We can also compare this to the acquisition cost and subsequent asset valuation of a property that is purchased through acquisition, to compare which one brings in a greater advantage in increasing its total asset value.  

CapitaMall Trust's Bid for the Clementi Mall Tender
As of this writing, CapitaMall Trust is the largest Reit in terms of total asset value, with latest figure at about $7.4 billion. It has definitely achieved the size to engage in significant property development activities.

So far I have never come across CMT having actually involved in any property development projects. But it has shown its interest for suburban mall developments with its bid for Clementi Mall in early November. The tender for Clementi Mall drew a response of six bids, and CMT's bid of S$338.8 million was the third highest. The tender was eventually awarded to a joint venture between Singapore Press Holdings, NTUC Income and NTUC FairPrice which placed the highest bid of $541.9 million. (Many has viewed this bid as being excessive as the next 4 bids were all in the S$300 million range). Although CMT was not awarded the tender, some analysts still view the decision to bid positively as it shows that it is ready to engage in property development actitvities.

Personally I find that tenders for development of new retail malls of significant size will probably be hard to come by. There are already quite a number of new malls being completed recently or in progress of development in both the central and suburban areas. Nowadays, you will hardly see a more populous town without a flagship mall in its town centre. New shopping areas will also come up in the integrated resorts and the Marina Bay area. My feeling is that if CMT wants to look for significant property development projects, it will probably need to look overseas. But this seems unlikely for now as property development overseas is already being undertaken by its new parent, CapitaMall Asia. Furthermore, CMT is still mainly a Singapore player, other than some indirect exposure to China through its 20% stake in CapitaRetail China Trust. It may likely remain a pure property landlord in the near term, unless of course there are tenders for smaller retail mall development projects.

Related Posts

• All about REIT - Net Asset Value (NAV) and Asset Valuation
• All about REIT - REIT, Business Trust, and Shipping Trust
• Other articles from All about REIT

Stock Movement - Ascendas Reit is a $2.00 stock again

Ascendas Reit closes at 2.08 for consecutive days on Dec 23 and Dec 24. On both days, it has touch an intra-day high of 2.10. Volume on Dec 23 was relatively high at about 11,359,000 units (52 Wk average volume about 497,639 units, source sharejunction).

This stock has largely been trading above $2.00 in 2008 before the fall of Lehman. From Jan 2009 onwards, the stock has never managed to cross the $2.00 level until yesterday. Finally, this stock is back as a $2.00 stock again. We will have to see whether it will hold above this level in days to come.

Stock Movement - Fortune Reit closes above the HK$3 today

Following the previous report Stock Movement - Fortune Reit closes above the HK$2.90 level today on Dec 4, Fortune Reit has achieved a new high today since the rights issue period, closing at HK$3.03. Volume was relatively high at 10,313,000 units (52 Wk average volume about 1,072,000 units, source sharejunction).

Commentary - Bought and Subscribed the MacArthurCook Reit Rights

The MacArthurCook Reit has never really been under my investment radar. Its gearing was too high at over 40%. Its asset value was the lowest among the industrial Reits, only slightly more than half of that of Cambridge Industrial Trust. Its properties were relatively small industrial buildings with non blue-chip tenants. It was also under an Australian sponsor, and in 2008 and early 2009 period, this Reit, along with Allco Commercial Trust (now Frasers Commercial Trust) and Macquarie Prime REIT (now Starhill Global Reit), all under Australian sponsors, were apparently struggling much harder than the other S-Reits. There was also the overhang of its ability to finance the acquisition of 1A International Business Park, which it has agree to purchase in 25 August 2007.

However, when its share price dropped to the 0.200 level during its trading of rights period couple of weeks back, and with the rights trading at a discount to the mother share (0.030 to 0.045 when mother share was 0.195 to 0.205, with the price to subscribe for rights share at 0.159), it has prompted me to study the recapitalization plans, especially the pro forma figures, in more details:


Pro Forma Figures
With reference to the section on PRO FORMA IMPACT OF THE PROPOSED TRANSACTIONS in the CIRCULAR TO UNITHOLDERS on Nov 6, following are some of the pro forma figures:

- DPU for 1H 2010 (01 Apr 2009 to 30 Sep 2009) = 1.04 cents
- NAV per unit as at 30 Sep 2009 = $0.31
- Total Debt as at 30 Sep 2009 = $190,758,000
- Appraised value/purchase price of portfolio for 1H 2010 = $652,866,000
- Gearing as at 30 Sep 2009 = 29.0%
- Units in issue = 1,465,308,000

Base on the pro forma DPU for 1H 2010 of 1.04 cents, and NAV of $0.31, at the price of $0.194 via buying of rights at 0.035 and subscribing to rights shares at 0.159, the pro forma yield will be about 10.7%, and at a discount of about 37.4% to the NAV.

The Positives

Base on the above pro forma figures, following are some positive factors that I have considered:

• Pro forma yield is still above 10%, still one of the highest among the Reits.
• Still at significant discount to the NAV.
• Overhang over acquisition of 1A International Business Park will be cleared following the recapitalization.
• Gearing will be reduced significantly to 29%, which is a healthy figure.
• Assuming price is maintained above 0.200, buying and subscribing to the rights offers an immediate break even, perhaps even a profit.

The Negatives
The following are some negative factors:

• The asset value is still way smaller than the rest of the industrial Reits after the new acquisitions.
• The sponsor, AIMS Financial Group, is not the likes of Capitaland or Kepland, which are blue chip companies that are more established here.
• With reference to the CIRCULAR TO UNITHOLDERS on Nov 6, under section 11 on Financing, there are some agreements over the S$ Refinancing Facility that restricts the gearing to 38%. Following is the related section:   "On 5 November 2009, the Trustee entered into a facility agreement with Standard Chartered Bank, CBA and NAB for a term loan of S$175.0 million.
  
  The S$ Refinancing Facility, together with the proceeds from the Rights Issue, will be used to partially refinance the existing S$ Term Loan. The S$ Refinancing Facility is conditional, amongst others, on the completion of the AMP Capital Investment, the Cornerstone Investments, the acquisition of 1A IBP and the Rights Issue.
  
  The Manager intends to draw down on the S$ Refinancing Facility after completion of the Rights Issue. The right to draw down the S$ Refinancing Facility is subject to MI-REIT’s Aggregate Leverage being less than 33.0%. The maximum allowable Aggregate Leverage of MI-REIT under the S$ Refinancing Facility is 38.0%. In addition, the minimum interest cover ratio of MI-REIT during the life of the S$ Refinancing Facility is 2.5 times.
  
  The S$ Refinancing Facility will bear interest at the relevant Singapore dollar swap offer rate plus (a) a margin of 3.5% where leverage is less than 35.0% or (b) a margin of 4.5% where leverage is equal to or greater than 35.0%. Under the terms of the S$ Refinancing Facility, the Manager is required to hedge at least 80.0% of the floating rate exposure (which is equivalent to S$140.0 million). MI-REIT currently has in place an interest rate swap facility for a notional sum of S$100.0 million and will be entering into additional derivative financial instruments contracts such that it hedges at least 80% of the floating rate exposure. The S$ Refinancing Facility has a term of three years from the date of first drawdown and will be secured by the Existing Portfolio and 1A IBP."
• There are some issues affecting the newly acquired AMP Capital Properties. Details in section 9.2 of the CIRCULAR TO UNITHOLDERS on Nov 6. Issues are relating to occupancy requirements, subletting approvals, and building approvals. Of course the manager has put in some clauses to protect the Reit in these acquisitions.
• The purchase price of 1A International Business Park (1A IBP) of S$90.0 million was agreed upon in 25 August 2007. Current valuation is S$73.0 million, according to the letter to unit holders on Nov 16.

Decision
After weighing some of the above factors, I have decided to go for the rights, subscribe for the rights shares and also the excess rights to lower the average price. The yield of most of the Reits have started to move lower with the rise in their prices, so the 10% yield, at a healthy gearing of 29%, is simply too hard to resist. But because of the risks involved, this will only form a very small part of my overall portfolio.

By the time I have decided to move in, the rights price has moved up to the 0.040 - 0.045 range. I got the rights on the last day of rights trading at 0.045.

Aftermath
Right after the trading of rights period, there seems to be strong support at the 0.200 level. The price has in fact moved up slowly to as high as 0.215. We will have to see what will happen to the share price after the rights shares have been issued.

All about REIT - REIT, Business Trust, and Shipping Trust

Other than REIT, Business Trust is another investment class that offers investors a way to invest in high yielding cash-generating assets. Shipping Trust is actually a type of Business Trust with assets mainly in ships. Following are brief descriptions of these investment products:

REIT

A Real Estate Investment Trust (“REIT”) raises capital to purchase primarily real estate assets, usually with a view to generating income for unit holders of the fund. It allows individual investors to access real property assets and share the benefits and risks of owning a portfolio of property assets which typically distribute income at regular intervals.

Business Trust

Business Trusts offer investors a new way to invest in cash-generating assets. Business Trusts are business enterprises set up as trusts, instead of companies. They are hybrid structures with elements of both companies and trusts. Like a company, a business trust operates and runs a business enterprise. But unlike a company, a business trust is not a separate legal entity. It is created by a trust deed under which the trustee has legal ownership of the trust assets and manages the assets for the benefit of the beneficiaries of the trust. Purchasers of units in the business trusts, being beneficiaries of the trust, hold beneficial interest in assets of the Business Trust.

As of this writing, CitySpring Infrastructure Trust and Hyflux Water Trust are 2 Business Trusts listed in SGX that owns infrastructure assets.

Shipping Trust

A shipping trust is registered as a business trust, and its business mainly involves acquiring ships and leasing them out to shipping companies for cash income.  

Currently there are 3 shipping trusts listed in SGX, namely the Pacific Shipping Trust, First Ship Lease Trust, and Rickmers Maritime. Compared to their REITs cousins, the shipping trusts are not doing as well recently. Their stock prices are still relatively depressed, probably because they are deemed as being riskier with their association to the volatile shipping cycle. The depressed prices in turn means higher yield to compensate for the risk in holding them.

Similarities
Following are some similarities between a REIT and a Business Trust:

• Unlike a listed company, the dividend payout of both REIT and Business Trust are from the operation cash flow rather than the accounting profit. As such, for a listed company, appreciation or depreciation of assets will  affect its accounting profit, and will in turn impact the dividend payout. REIT and Business Trust, on the other hand, can still maintain the same dividend payout even if there is appreciation or depreciation of assets as these are just accounting profit/loss and not loss in cash income.
• No tax on individual investors on the distribution income.
• Assets they own are usually highly expansive and requires some form of debt financing for the acquisition.
• Most of them have a sponsor that injects assets into the trust based on a right of first refusal agreement.
  

Differences
Following are some differences between a REIT and a Business Trust:

• REIT is legislated under the Code on collective Investment Schemes, while the Business Trust is under the The Business Trusts Act.
• The REIT has a separate Trustee and asset Manager, while for a Business Trust, these roles are fulfilled by a single entity. The Trustee-Manager of Business Trusts thus has dual responsibility of safeguarding the interests of unitholders and managing the Business Trusts. This stems from the difficulty in apportioning the fiduciary responsibility between two roles given the nature of Business Trusts as active enterprises.
• The gearing limit for REIT is 35% without corporate rating, and 60% if it has a rating. There is no gearing limit for Business Trust. Thus it is not surprising to find Business Trust with debt being equal or even few times the value of its total assets.
• Assets of REITs are restricted to real estate. Business Trust has no such restriction, and may own a variety of cash generating assets including ships, gas stations, power stations, water treatment plants, etc.
• REIT has to maintain a minimum payout ratio of at least 90% of its distributable income. A Business Trust does not have this restriction, but it will usually maintain a high payout ratio.

REIT or Business Trust?
This is a question that cannot be generalized because different REITs and Business Trusts can have different levels of quality and risks. Even among the Business Trusts, we cannot compare apple to apple a Shipping Trust and an Infrastructure based Trust. Having said that, because of some distinct differences in their nature, the are some factors we can consider when deciding between a REIT or a Business Trust.

• As a Busines Trust has no gearing limit, it can potentially have a gearing of 100% or more. So when you have a REIT of 20% gearing and a Business Trust of 300% gearing, both giving the same yield, what should be the decision? Of couse some may argue that having no gearing means that the Business Trust can potentially grow much faster by debt. Well this boils down to the risk tolerance of an individual, whether you are looking for high risk high return kind of investment, or otherwise.
  
• The minimum payout ratio for REIT is 90%, while Business Trust has no such restriction. So Business Trust may have a higher element of surprise in having a drastic cut of payout ratio in times of difficulties. Case in point, Rickmers Maritime. Due to the current difficult operating environment, the Trust has accelerated its cash retention efforts. The distribution payout for 2Q2009 and 3Q2009 was 13% of distributable income compared with 46% in 1Q2009 and an average of 67% for FY2008. Compare this with CDL H-Trust, which cuts the payout ratio from 100% to 90% earlier this year. 

Related Posts

• All about REIT - REIT as a Property Developer 
• All about REIT - The Basics Part 6: Property Types and Geographical Location
• Other articles from All about REIT

REIT Financial News - Ara Asset Management plans to launch the first Shariah-Compliant Reit

ARA SIGNS EXCLUSIVE MOU WITH QATAR-BASED REGENCY GROUP TO ESTABLISH FIRST SHARIAH-COMPLIANT REIT IN SINGAPORE. See report.

Key Points

• ARA Asset Management has entered a partnership agreement with Qatar-based Regency Group to jointly manage a Shariah-compliant REIT. 
• Plans to list the REIT in SGX in the second half of 2010.
• Proposed REIT to comprise mainly of hospitality properties, including hotels and serviced apartments in Qatar.
• Properties will be contributed by the Regency Group as the sponsor of the REIT.  
• The Regency Group is a leading real estate developer and investor in the Gulf Cooperation Council, with a portfolio of hospitality, residential, commercial and retail properties in Qatar.
• ARA Asset Management, an affiliate of the Cheung Kong group, is a real estate fund management company listed in SGX. It is currently the manager of SUNTEC Reit and Fortune Reit. 

Author's Note
This is not the first time the idea of a Shariah-compliant Reit has been conceived in Singapore. Earlier part of the year, Cambridge Industrial Trust has also explored the idea of becoming a Shariah-compliant Reit, but there was no follow-up subsequently. It was widely believed then that the move was to attract funding from the rich middle eastern countries.

Stock Target Price - Ascott Reit by Kim Eng, Suntec Reit by CIMB

Updated latest target price of Ascott Reit by Kim Eng Securities.
Maintains buy with TP of S$1.29.

Updated latest target price of Suntec Reit by CIMB.
Maintain Outperform; target price down to S$1.51 (from S$1.59).

Latest updates at Stock Target Price

Stock Target Price - DBS Vickers upgrades target price of SUNTEC Reit after private placement

DBS Vickers upgrades target price of SUNTEC Reit after private placement.
Maintains buy and upgrades TP from S$1.32 to S$1.38.

Philips Securities maintain hold with TP S$1.14.

Latest updates at Stock Target Price

Commentary - Starhill Gallery in Dubai

Recently I happened to stumble upon this old news dated 17 April 2007 in the YTL community website: YTL Corp launches Starhill Gallery in Dubai

Key Points

• An agreement was signed by Pintar Projek, a subsidiary of YTL Corp, and ETA Star to launch Starhill Gallery in Dubai.
• Dubai's Starhill Gallery will be part of the US$410 million (RM1.4 billion) Starhill Towers & Gallery complex being developed by ETA Star.
• Pintar Projek is also the manager of Starhill REIT listed in Bursa Malaysia.
• ETA Star is a leading property developer in the UAE. 
• Construction of the Starhill Towers & Gallery is scheduled for completion in the second quarter of 2010.
• Pintar Projek will provide brand management services to ETA Star in return for licensing fees and an annual brand management fee.
• There is no capital expenditure requirements for YTL Corp.

Was unable to find any follow up news on this, so not sure whether the project is still ongoing. Anyway the last 2 key points mentioned above actually assures that YTL's involvement does not incur any capital expenditure. It is purely licensing out the Starhill brand name. So although  Dubai is in the picture, this should not have much impact on YTL, and probably should not impact its subsidiaries at all.

Starhill Reit and Starhill Global Reit
One should not be confused by these 2 Reits of very similar name, both of which are being sponsored by YTL Corp. Starhill Reit is listed in Bursa Malaysia, while Starhill Global Reit is listed in SGX. Starhill Global Reit was originally Macquarie Prime REIT. It was renamed after YTL Corp bought a 26 per cent stake in the REIT, as well as a 50 per cent stake in Macquarie Prime REIT's manager, Macquarie Pacific Star Prime REIT Management in Oct 2008.

In 18 November 2009, YTL announced the restructuring of Starhill Reit and hotel portfolio under its control. The restructuring exercise will reposition Starhill REIT as a global hospitality REIT. This involves the disposal of its two retail properties, Starhill Gallery and its parcels in Lot 10 to Starhill Global REIT, followed by the injection of new hotel assets to put Starhill REIT on the path towards becoming a fully-fledged international hospitality REIT.

All about REIT - The Basics Part 6: Property Types and Geographical Location

REITs can be distinguished by property types and geographical location. Currently there are 5 main property types for SREITs, namely healthcare, retail, office, industrial, and hospitality. Geographical location wise, most of the SREITs are Singapore-centric, and some have regional exposure mainly in the asia pacific region.

Different property types and geographical location also mean different level of risk. The risk level will in turn translate to the stock price volatility of the REIT. The higher the risk, the stock price will usually be more volatile, i.e. high beta. Following is the general ranking of the risk level of REITs by property types, based mainly on the volatility of its rental income and how much it is correlated to the business cycle (From the highest to lowest in risk level):

1) Hospitality
2) Office and Industrial
3) Retail
4) Healthcare

Hospitality Reit
Currently there are 2 listed hospitality Reit, CDL H-Trust and Ascott Reit.

The portfolio of Ascott Reit is made up of serviced apartments. It is one of the more geographically diversified Reits, with properties in developed markets such as Singapore, Australia and Japan, and also emerging markets such as Vietnam, China, Indonesia and The Philippines.

The portfolio of CDL H-Trust consists of hotels and one relatively small retail property, namely the Orchard Hotel Shopping Arcade. Almost all its hotels are located in Singapore, except for one in New Zealand.

In terms of property types, hospitality sector is usually deemed as the most risky because the length of stay in the properties is usually short term. We can look at the price movement of CDL H-Trust to get an idea. Despite having a relatively low gearing of 19%, since the begining of the financial crisis, its share price has dropped from above the $1.5 level all the way down to $0.415 in March 2009. Yet when market started to turn better, it was one of the best performing REIT, with its stock price going even higher than pre-Lehman level. Recently the price has broken the 52 weeks high above the $1.70 level. This really does fulfil the saying of high risk high return.

Office Reit
CapitaCommercial Trust, K-Reit Asia, and FrasersCommercial Trust are some of the listed office Reits.

The portfolio of CapitaCommercial Trust includes mainly offices. The properties it owns directly are all in Singapore, but it does have some exposure in Malaysia through its stake in the Quill Capita Trust (“QCT”), a REIT listed in Bursa Malaysia which owns commercial properties in Malaysia.

K-Reit Asia owns offices in Singapore. Currently it does not have exposure in other countries.

The portfolio of FrasersCommercial Trust includes mainly offices. The properties are located across Singapore, Australia and Japan. It also owns Alexandra Technopark, which is essentially an industrial building, albeit a high-tech one. It also has some exposure in retail properties indirectly through its stake in Allco Wholesale Property Fund, which has exposure to both office and retail sectors in Sydney.

Industrial Reit
Ascendas Reit, MapleTree Logistics Trust, Cambridge Industrial Trust and MacArthurCook Reit are the 4 listed industrial Reits.

Ascendas Reit is a pure Singapore play, with its portfolio of industrial properties such as Business and Science Parks, Logistics and Distribution Centres, and Hi-Tech Industrial buildings.

MapleTree Logistics Trust owns mainly logistics properties. It is one of the more geographically diversified Reits with properties in 6 countries, namely Singapore, Malaysia, China, Hong Kong, Japan, and South Korea.


Cambrige Industrial Trust owns industrial properties which are all in Singapore. Its properties include warehouses, light industrial buildings, car showrooms and workshops.

MacArthurCook Industrial Reit owns industrial properties mainly in Singapore. It also has a warehouse property in Japan.

Retail Reit
CapitaMall Trust, CapitaRetail China Trust, FrasersCentrepoint Trust, Fortune Reit, LippoMaple Indonesia Trust, and Starhill Global Reit are some of the listed retail reits.

The portfolio of CapitaMall Trust includes mainly shopping malls in Singapore. It has some exposure to China through its 20% stake in the CapitaRetail China Trust, another listed Reit. It also has some office properties in Raffles City, etc, which forms a very small part of its overall portfolio.

The portfolio of CapitaRetail China Trust includes shopping malls in China. As the name implies, it is a pure China play.

The portfolio of FrasersCentrePoint Trust includes shopping malls in Singapore, mainly in the suburbs.

The portfolio of Fortune Reit includes shopping malls in Hong Kong. It is currently still a pure Hong Kong play, though its management has expressed before its interest to expand into China.

The portfolio of LippoMaple Indonesia Trust includes shopping malls in Indonesia.

The current portfolio of Starhill Global Reit includes mainly shopping malls in Singapore, Japan and China. With the recently announced acquisition plan, it will be expanding its geographical reach to Australia and Malaysia, making it the most geographically diversified Retail Reit listed here. It is not called a "Global Reit" without reason. A small part of its portfolio also includes office properties, including those in Ngee Ann City and Wisma Atria.

Healthcare Reits
Currently there are 2 listed healthcare Reits, Parkway Life Reit and First Reit.


The portfolio of Parkway Life Reit includes mainly hospitals in Singapore, namely Mount Elizerbeth, Gleneagles, and Eastshore. It also owns a number of medical facilities and nursing homes in Japan.

The portfolio of First Reit includes mainly hospitals and a hotel in Indonesia. It also owns some nursing homes and a hospital in Singapore.

Office and Retail Reits
Suntec Reit has significant ownership of both office and retail properties. So it is difficult to classify it either as a office or a retail reit. All its properties are located in Singapore, bulk of which are located in Suntec City.

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REIT Financial News - SUNTEC REIT PRIVATE PLACEMENT

SUNTEC REIT PRIVATE PLACEMENT – PRIVATE PLACEMENT OF 128,500,000 NEW UNITS IN SUNTEC REIT AT AN ISSUE PRICE OF S$1.19 PER NEW UNIT. See report.  


PRESS RELEASE - PRIVATE PLACEMENT UNITS IN SUNTEC REIT MORE THAN FIVE TIMES OVERSUBSCRIBED. See report.  



Author's Note
Amount of cash raised through this private placement exercise is S$149.0 million.  Assuming that the net proceeds from the Private Placement are fully used to repay debt facilities, Suntec REIT’s gearing is expected to fall from 34.3% to 31.5%.

From the latest quarterly earnings report in Sep 2009, the latest no. of units in issue is 1,628,774,865. The 128,500,000 of new units issued is about 7.89% of the existing units. Not to forget the 4th installment of 34,500,362 units just issued on Dec 9, there will be about 10% extra units altogether. Of course to prevent dilution of DPU for existing holders, there will be advanced distribution from 1 October 2009 to the day immediately prior to the New Units to be issued. The deferred units are also placed in a temporary stock counter (i.e. SuntecReit A), and their DPU end of this quarter will only be from their date of issue on Dec 9 to end of the quarter.

As there is no announcement of using this fund for acquisitions purpose, and with the new units and deferred units issued, unless there is significant increase in rental income of the existing properties, the DPU will probably be diluted in subsequent quarterly distributions. Assuming rental income remains stagnant from the last quarter, which has a DPU of about 2.92 cents, and taking in the 10% increase in new private placement units and deferred units, my rough estimate of subsequent DPU = 2.92/1.1 = 2.655 cents per unit.

REIT Financial News - Capitacomm issues S$50,000,000 3.5 Per Cent Fixed Rate Notes Due 2013

CapitaCommercial Trust: Issuance of S$50,000,000 3.5 Per Cent Fixed Rate Notes Due 2013 pursuant to the S$1,000,000,000 Multicurrency Medium Term Note Programme. See report.

Author's Note 
For some perspective, we refer to the latest (3Q 2009) quarterly earnings presentation slides of CCT, which states that the average cost of debt is at 3.9%. So this new debt at a fixed rate is actually lower than the average. According to the slides too, the latest total debt stands at S$1,979.1 million.

Medium Term Notes (MTN)

Medium Term Note is a debt security that usually matures in 5 to 10 years, but can be less than 5 years. It will pay out a fixed coupon at a regular basis like bonds. In the case of this MTN, the coupon will be at a fixed interest rate of 3.5 per cent per annum payable semi-annually, maturing in about 3.5 years on 10 June 2013.

Medium Term Notes (MTN) Program

The MTN is usually connected to a medium term note program, which is a funding program used by issuers to receive debt funding on a regular and continuous basis. In the case of CCT, this issuance is actually part of the S$1,000,000,000 MTN program established on 20 November 2007.

Stock Target Price - Target price updates by OCBC

Updated target price and recommendations by OCBC for Ascendas Reit, Ascott Reit, Capitacomm, FrasersCT, LippoMaple Trust, MapletreeLog, SUNTEC Reit at Stock Target Price.

Stock Target Price - Kim Eng downgrades CCT to SELL but up target price to S$0.99

Kim Eng downgrades CapitaCommercial Trust to Sell, but upgrades target price from S$0.94 to S$0.99.

See updated target price by Kim Eng for CCT at Stock Target Price.

REIT Financial News - ISSUE OF 34,500,362 NEW UNITS IN SUNTEC REAL ESTATE INVESTMENT TRUST

ISSUE OF 34,500,362 NEW UNITS IN SUNTEC REAL ESTATE INVESTMENT TRUST. See report.

This is the fourth of six instalments of deferred units mentioned in my previous posting about SUNTEC Reit and its deferred units.

REIT Financial News - Standard & Poor's Ratings Services affirms Frasers Commercial Trust's Long-term Corporate Credit Rating (BB) and Revises Outlook to Stable

Standard & Poor's Ratings Services affirms Frasers Commercial Trust's Long-term Corporate Credit Rating (BB) and Revises Outlook to Stable. See report.

Stock Movement - MacArthurCook Reit and MacArthurCook Rights

Shares of MacArthurCook Reit were trading at a narrow range of 0.195 - 0.200, while the MacArthurCook rights were trading at around 0.030 - 0.035. The trading of rights commenced on Dec 3 and will end on Dec 11.

Author's Note
There was a arbitrage opportunity today. If you had wanted to buy the shares directly at say S$0.200, you could have bought the rights at S$0.035 and subscribed for the rights shares at the Rights Issue Price of S$0.159 per unit, which will then cost you a total of S$0.194 per share, a discount of S$0.006 per share. Of course you must remember to subscribe to the rights shares before the deadline on Dec 17. Note that commission has not been factored in, but you would have incurred commission charges anyway whether you are buying the shares or the rights. Big shareholders could have make use of this opportunity to sell the mother shares and buy the rights to pocket the difference in pricing. Of course the number of shares and rights transacted have to be substantial to make a significant difference.

Pro Forma Figures
With reference to the section on PRO FORMA IMPACT OF THE PROPOSED TRANSACTIONS in the CIRCULAR TO UNITHOLDERS on Nov 6, following are some of the pro forma figures:

- DPU for 1H 2010 (01 Apr 2009 to 30 Sep 2009) = 1.04 cents
- NAV per unit as at 30 Sep 2009 = $0.31
- Total Debt as at 30 Sep 2009 = $190,758,000
- Appraised value/purchase price of portfolio for 1H 2010 = $652,866,000
- Gearing as at 30 Sep 2009 = 29.0%
- Units in issue = 1,465,308,000

Base on the pro forma DPU for 1H 2010 of 1.04 cents, and NAV of $0.31, at the price of $0.194 via buying of rights and subscribing to rights shares, the pro forma yield will be about 10.7%, and at a discount of about 37.4% to the NAV.

Things to take note:
- Above figures may not hold if industrial properties continue to devalue and rental income continue to decline.
- The purchase price of 1A International Business Park (1A IBP) of S$90.0 million was agreed upon in 25 August 2007. Current valuation is S$73.0 million, according to the letter to unit holders on Nov 16.

Stock Movement - Capitacomm trends up to 52 weeks high. K-Reit breaks out of trading range.

CapitaCommercial Trust closes at 52 weeks high of 1.18 today at a high volume of about 12,046,000 units. It manages to touch 1.20 at the intraday high. K-Reit, another office REIT, also breaks out of its trading range after the rights issue to close at 5 weeks high of 1.07, which is also its intraday high.

Is this signaling the beginning of recovery of the office sector? The recent K-REIT Asia Investor Meetings December 2009 seems to suggest so in the Singapore Office Sector Outlook of the presentation slides.

Currently both REITs are trading at a yield of around 5-6%, and at a discount to their NAV of 1.49. Gearing of Capitacomm and K-Reit are around 31% and 9% (post rights issue) respectively.

REIT Financial News - Mapletree to Form Joint Venture With ITOCHU to Develop Build-To-Suit Logistics Properties in Japan

The sponsor of Mapletree Logistics Trust, Mapletree Investments Pte Ltd, has announced on Dec 06 that it has signed a Memorandum of Understanding (“MOU”) to enter into a joint venture with Japan’s ITOCHU Corporation (“ITOCHU”) to undertake primarily Build-to-Suit development projects for strong logistics tenants in Japan. See full report. 


Key Points:
- The partnership aims to develop US$300 million to US$500 million worth of logistics properties over the next 24 months in Japan. 

- The two companies also cemented their strategic alliance by extending for a further two years through another MOU to collaborate on investment and development of logistics, retail, industrial and commercial real estate projects in Japan, Singapore and the rest of Asia. 

- Itochu is also now an investor in the Mapletree Industrial Trust, which holds the $1.7 billion industrial assets privatised by JTC Corporation.

- The completed assets will be offered to Mapletree's logistics real estate investment trust, Mapletree Logistics Trust, on a right of first refusal basis.


Author's Note: 
Mapletree Logistics Trust was rather agressive in its expansion up to 2008 period, with gearing hitting a high of over 50%. The gearing was brought down to the 30++% level after a rights issue in August 2008. Its gearing currently stands around 38%.It has recently done a private placement to fund acquisitions, but this has left the gearing almost unchanged. Have expected it to go on the path of rights issue like the other REITs to bring down its gearing. Current total debt stands at around S$1,175 million. If it were to be acquire these US$300 million to US$500 million worth of logistics properties in Japan over the next 24 months, it will definitely need more significant funding by debt, by equity, or a combination of both. 

All about REIT - The Basics Part 5: Sponsors

Most of the SREITs have a sponsor which, as the name implies, is another company that basically provides support to the REIT. Unlike trustee and manager, the roles and responsibilities of a sponsor are not explicitly defined in the MAS Code on Collective Investment Schemes. So the type and level of support that is provided is very much dependent on the REIT and sponsor relationship.

So what are some of the common roles and attributes of the sponsors?

The sponsor is usually the major shareholder of the REIT
In most cases when the REIT is created, it is the sponsor who injects its own properties into the initial portfolio of the REIT. The sponsor will then retain majority of the ownship when the REIT is listed.

Right of first refusal of the sponsor's assets
There is usually a right of first refusal agreement between the REIT and its sponsor. When the sponsor wants to sell its property asset, the REIT will be offered the right to purchase the asset first before it is being offered to the market. Point to note is that usually the sponsor has the obligation to ensure that the rental income of the properties are stable before injecting them into the REIT.

Source of credit
When the REIT is sourcing for credit for acquisition purpose or refinancing of debt, the presence of a strong sponsor will offer several advantages. The financial institutions may be more willing to lend because of the sponsor. The REIT may also tap on the existing relationship of the sponsor with certain financial institutions. As a last resort, the sponsor may also provide credit to the REIT with its own funds. For example, in Nov 2008, Fraserscomm refinanced its short-term debt of S$70.0 million by way of a loan from F&N Treasury Pte. Ltd, a wholly-owned subsidiary of its sponsor F&N.

Source of equity
When the REIT is raising funds via rights issue, the sponsors may support the exercise by undertaking to subscribe for their pro-rata entitlement of rights units, and also to subscribe to part or all of the excess rights units. In a way, we can view this as the sponsor injecting funds directly into the REIT. Sometimes the sponsor's percentage holding of the REIT may be increased as a result of subscribing to the excess rights. For example, in the rights issue exercise of Mapletree Logistics Trust in August 2008, its sponsor Mapletree Investment has increased its stake in the REIT from 30.2% to 46.9% after acquiring 325m excess rights units.

Advantages of having a sponsor
The advantages of having a strong sponsor are clearly revealed during the financial crisis. The REITs were able to tide through difficult times with the support of the sponsor, whether in their support in the rights issue exercises, or in helping to source for credit.

Disadvantages of having a sponsor
There are some who argues that the rights of first refusal agreement with the sponsor is at a disadvantage to the REIT. The argument is that as the sponsor may also be the major shareholder, the REIT may be 'pressured' to purchase the assets, even if it is not being offered the best price in the market. Of course this point can only be proved if the asset is really refused and offered to the market such that the prices can be compared. Some also questioned the quality of the properties injected by the sponsors into the REITs.

List of some of the REITs and their sponsors
[Updated as at 10 Nov 2010]

REIT	Sponsor
AscendasReit	Ascendas Pte Ltd
AscottReit	Capitaland
Cache Logistics	CWT
CapitaRChina	Capitaland
CapitaComm	Capitaland
CDL H-Trust	CityDev
CapitaMall	Capitaland
FirstReit	Lippo Group
Fortune	Cheung Kong (Holdings) Limited
FrasersComm	F&N
FrasersCT	F&N
K-Reit	Keppel Land
LippoMapleTrust	Mapletree Investments, Lippo Group
MapleTreeInd	Mapletree Investments
MapleTreeLog	Mapletree Investments
AIMSAMPI Reit	AIMS Financial Group
PLife	Parkway Holdings
Starhill Gbl	YTL Corporation
Suntec	Suntec City Development Pte Ltd

Some background information about the sponsors
[Updated as at 10 Nov 2010]

Sponsor	Background	Listed
Ascendas Pte Ltd	In 2001, the subsidiary of JTC, Arcasia Land, merges with the international operations arm of JTC International to form Ascendas Pte Ltd. Currently Ascendas is Asia's leading provider of business space solutions. Renowned for quality infrastructure and lifestyle environments catering to business, Ascendas has an excellent track record as Asia’s premier developer and manager of business space.
Capitaland	CapitaLand is one of Asia's largest real estate companies. Headquartered and listed in Singapore, the multi-local company's core businesses in real estate, hospitality and real estate financial services are focused in growth cities in Asia Pacific, Europe and the Gulf Cooperation Council (GCC) countries.	SGX
CityDev	Singapore's property pioneer since 1963, City Developments Limited (CDL) is a listed international property and hotel conglomerate involved in real estate development and investment, hotel ownership and management, facilities management, as well as the provision of hospitality solutions. The Group's global presence is led by its diversification into hospitality management and the acquisition of hotel assets through CDL's London-listed subsidiary, Millennium & Copthorne Hotels plc (M&C).	SGX, London (M&C)
CWT	CWT was founded in 1970 and listed on the Singapore Exchange in 1993. CWT has since grown and the principal businesses of CWT currently comprise integrated logistics solutions and engineering maintenance and facilities management services. Being the largest listed logistics company in Southeast Asia, CWT offers integrated logistics solutions to some of the world´s leading brands in the chemical, commodities, automotive, marine, oil & gas, defence and industrial sectors. Through its global network, the CWT Group is able to connect customers to 120 ports and over 1,200 destinations seamlessly around the world.	SGX
Lippo Group	The Lippo Group is a major Indonesian conglomerate founded by its Chairman, Dr. Mochtar Riady in the 1950s. It consists of private and public companies in China mainland, Hong Kong and Macau; Indonesia, Philippines, Singapore and South Korea with US$11 billion in assets. Lippo Group has over 15 public-listed companies in different parts of Asia including Hong Kong, Indonesia and Singapore.
Cheung Kong (Holdings) Limited	Cheung Kong (Holdings) Limited ("Cheung Kong Holdings") is the flagship of the Cheung Kong Group, the leading Hong Kong based multi-national conglomerate. Cheung Kong Holdings is a property development and strategic investment company. It is one of the largest developers in Hong Kong of residential, commercial and industrial properties. About one in seven private residences in Hong Kong were developed by the company. The company also has substantial interests and operations in life sciences and other businesses. It is listed on the Main Board of the Hong Kong Stock Exchange.	Hong Kong Stock Exchange
F&N	F&NL is a leading Pan Asian Consumer Group with core expertise and dominant standing in the Food and Beverage, Property and Publishing & Printing industries. Leveraging on its strengths in marketing and distribution; research and development; brands and financial management; as well as years of acquisition experience, it provides key resources and sets strategic directions for its subsidiary companies across all three industries. F&NL owns an impressive array of renowned brands that enjoy market leadership across a mix of beer, dairies, soft drinks and beverages; residential properties, retail malls and serviced residences; as well as publishing and printing services.	SGX
Keppel Land	Keppel Land is today one of Asia's premier property companies, recognised for its sterling portfolio of quality award-winning residential developments and investment-grade commercial properties, and high standards of corporate governance and transparency. Keppel Land is geographically diversified in Asia, with current focus on Singapore, China, Vietnam, India and Indonesia.	SGX
Mapletree Investments	Mapletree Investments (Mapletree) is a 100% owned subsidiary of Temasek Holdings. It is a leading real estate company in Singapore with an Asian focus. It is focused on investing in and managing real estate assets and funds in the office, logistics, industrial, business park and retail/lifestyle sectors.
AIMS Financial Group	AIMS Financial Group Established in 1991. AIMS Financial Group is an Australian diversified non-bank financial services and investment group which has a solid track record in the Australian mortgage and securitization markets. Since establishment, AIMS Financial Group has also expanded to become an international financial group focusing on lending, securitization, real estate investment, private equity, investment banking, funds management, securities exchange ownership and e-commerce across the Asia Pacific region.
Parkway Holdings	Parkway Holdings Limited provides healthcare services throughout Asia, while also managing Parkway Life REIT and providing healthcare education through Parkway Education Pte Ltd.	SGX
YTL Corporation	YTL Corporation Berhad is one of the largest companies listed on the Bursa Malaysia. The company was listed in 1985, has also had a secondary listing on the Tokyo Stock Exchange since 1996. YTL was the first Asian non-Japanese company to be listed on the Tokyo Stock Exchange. The YTL Group's core businesses are ownership and management of regulated utilities and other infrastructural assets, serving 10 million customers in three continents.	Bursa Malaysia, Tokyo Stock Exchange.
Suntec City Development Pte Ltd	Suntec City Development Pte Ltd was incorporated in Singapore in August 1988. In December 1988, its highest bid and distinguishable design won the Urban Redevelopment Authority (URA) tender to build the S$2.3 billion complex comprising the convention and exhibition centres, office towers and a shopping and entertainment centre. Situated on a site of 11.7 hectares, Suntec City is the single largest privately owned commercial development in Singapore. Funded entirely by a consortium comprising some of Asia’s most successful entrepreneurs, it began with a vision to create a futuristic city to meet the challenges of a global metropolis and be a premier landmark of Singapore in the 21st century.

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• All about REIT - The Basics Part 6: Property Types and Geographical Location 
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Stock Movement - Fortune Reit closes above the HK$2.90 level today

Fortune Reit closes above the HK$2.90 level today, at HK$2.940 with trading volume of 7,158,000 units, second top volume among the REITs today. Intraday high was HK$2.970.

Fortune Reit closed at a high of above HK$3.32 on Aug 21, one trading day before the announcement of rights issue and acquisitions of 3 new properties on Aug 24. Following the announcement, the price fell to the HK$2.9 level and hovered around that region for a few weeks. The price fell further when the rights were being traded, hitting an intraday low of HK$2.45 on Sep 24. Following the issue of new shares, the price was mostly around the HK$2.7 region.

Author's Note:
I have bought Fortune during the rights trading period at around HK$2.70++. Bought more when the price went lower to around HK$2.50++. Also successfully applied for some excess rights shares at HK$2.29. Average price is around HK$2.60. My rational for buying the stock then was because with the price around HK$2.5 to HK$2.7 region, and the promo forma semi annual DPU of HK$0.1203, the yield is estimated to be around 8-9% post rights issue, still one of the highest among the REITs, with the gearing still maintained at a relatively low level of around 25%. If the uptrend continues, there will finally be some pay off to my patience.

There will be a semi annual distribution at the end of this quarter, XD probably around January next year. Hopefully this will be a support and even boost to the share price. However, one thing to take note is that the REIT might not meet the promo forma DPU for this semi annual distribution as the 3 new properties were only officially acquired on Oct 15 2009. Their rental contribution to the coming semi-annual distribution will only be for one quarter.

Stock Movement - CapitaMall climbs back above the 1.8 level

CapitaMall Trust climbs back above the 1.8 level today, closing at the highest price of the day of 1.81, at a volume of 5,980,000 units, top volume among the REITs counters.

After closing at a high of 1.87 on Oct 1, the REIT has been trending downwards after the announcement of the CapitaMall Asia IPO. Many has attributed this to the transferring of funds from CapitaMall Trust to CapitaMall Asia. The REIT hits an intraday low of 1.56 on Nov 2, and been hovering around 1.6 to 1.7 level for the past few weeks. The REIT has been slowly trending up after the IPO of CapitaMall Asia on Nov 25, and manages to close above 1.8 today.

Stock Target Price - CIMB downgrade the SREIT sector to Neutral from Overweight

CIMB downgrade the SREIT sector to Neutral from Overweight.

See updated target price by CIMB for A-Reit, Ascott Reit, CCT, CMT, SUNTEC Reit, Mapletree Logistics, Plife, CDL H-Trust, FrasersCT at Stock Target Price

Books and Thoughts - Growing Your Tree Of Prosperity

The "Me and My Money" article of the sunday times investment section this week features Mr Ng Wai Chung, the author of the books Growing Your Tree Of Prosperity (2005), Harvesting The Fruits Of Prosperity (2007), and the latest book Sowing The Seeds Of Prosperity. I have read the first 2 books, and actually my interest in REIT investment is partly inspired by his books. I believe he is in turn inspired by Robert Kiyosaki's idea of cash flow in Rich Dad Poor Dad. The main idea he is trying to put forward is that we should grow our passive income and reduce our expenses to a point that the passive income can more than cover the expenses. I like the books because they are written in the Singapore context, so while Rich Dad Poor Dad tells you the concept of cash flow, these books provide some useful guidance in how to put the cashflow concept into practice in Singapore.

REIT was introduced in the books as a viable investment vehicle to grow the passive income because it pays a dividend that is usually higher than normal companies, and it does so in a regularly and consistently, in terms of the distribution amount. The books also introduced some companies that pay relatively high dividend consistently, such as the telcos, Comfort Delgro, SPH, etc.

I remember reading about REITs in one of the chapters, probably in the 2005 book. I think at that time not many REITs have been listed yet, so it has only introduced Ascendas REIT (A-REIT) and CapitaMall Trust (CMT). The yield then, as mentioned in the book, was about 4%, and it was considered a relatively high yield at that time. As of this writing, CMT yield is about 5.4%, and A-REIT about 7%. Few months back in March, their stock prices were so depressed that they were yielding more than 10%. I think someone who has seen these REITs yielding at 4% in 2005, would never have believed the yield will go up to 10% one day. This just get to show how much things can change in the market.

In 2008, around the time after the collapse of Bear Stearns and before the collapse of Lehman Brothers, in order to grow my passive income, I was shopping around for high yield stocks. I thought it was a good time to go into the market as some time after the collapse of Bear Stearns, the market seems to have stabilized. So I bought high yield stocks like Cambridge Industrial Trust (CIT), a REIT, First Ship Lease Trust (FSLT), a Shipping Trust, and Macquarie International Infrastructure Fund (MIIF), a Business Trust. I bought CIT at around 0.680++, FSLT at around 1.100++, and MIIF at around 0.860++. At that time I thought it was too good an opportunity to miss, as they were trading at around 50-70% of their peak prices in 2007, at 50-70% of their NAV, and were all yielding more than 10%. I did check their historical cash flow to verify that they had been consistent in generating the cash flow to support the dividend distribution. The gearing was rather high for all the 3 trusts, but I did not think too much into it. My thinking then was even if the market goes down, I will still be able to get a regular distribution of cash to help ride through the rough times.

Well to this day I still believe my thinking was not entirely wrong then. Dividend yield stocks should indeed help you ride through rough times with the regular cash flow. However, I have underestimated the effect of the credit crunch on companies with high level of debts. During the good times where there was abundance of credit, these companies have borrowed heavily to acquire more assets to boost the yield.With the collapse of Lehman, financial institutions were unwilling to lend, and so the worry over the repayment or refinancing of debts became such a big issue that their stock prices were heavily punished by the market. Their prices went down to an all time low, dropping by a further 50-70% of my purchase prices. Dividends were also cut, some by as much as 50%. I sold them at a huge loss at the worst of the crisis to switch to blue chips. Prices of blue chips also went down a lot at that time, but I was more confident of the recovery of blue chips than the high yield and high gearing stocks. In hind side, I have done the right thing as with the recent bull run most of the blue chips have recovered to pre-Lehman levels, whereas CIT and MIIF are still trading around 0.4++ and FSLT around 0.6++, still way below their pre-Lehman levels.

So what have I learnt? Don't chase high yield stocks just for the sake of getting as much dividend as possible. Research into whether they can sustain the dividend payout. More importantly, check the kind of debts they are holding and the chances of repaying or refinancing. If you are not sure,
it may be wiser to go for something that may yield less but is able to give you a better peace of mind (like Singapore Post, Comfort Delgro, etc). If you are not careful, you may lose so much in the capital that will take years of dividends to cover back. The building up of passive income should be a long term affair, so sustainabilty of the payout is very important. You do not want to come to a point that suddenly the distribution is cut such that your passive income is no longer able to cover the expenses.

REIT Financial News - UPDATE ON STARHILL GLOBAL REIT’S JAPAN PORTFOLIO

The master leases and property management agreements with Future Revolution K. K. (“Future Revolution”) for Starhill Global REIT’s portfolio of seven properties in Japan have been terminated with effect from 30 November 2009. This will mitigate tenant concentration risks with Future Revolution.  - see report

• Starhill Global ML K.K., Starhill Global REIT’s special purpose vehicle, has assumed the roles of master lessee for the seven properties and sub-lessor under the sub-lease agreements with the end-tenants with effect from 1 December 2009.
  
• Consents have been received from approximately 94% of end tenants (based on net lettable area (NLA)) to succeed Future Revolution’s position under the respective sub-lease agreements.
• Savills Japan K.K. has replaced Future Revolution as the local property manager for the seven properties with effect from 1 December 2009.
• The Manager will work closely with Savills Japan K.K. to achieve higher occupancy for the portfolio.
• As at 30 September 2009, Starhill Global REIT’s Japan portfolio of seven properties enjoyed 100% occupancy except for Daikanyama (88%) and Holon L (33%). The portfolio contributed 7.5% (S$7.5 million) and 7.9% (S$6.3 million) to Starhill Global REIT’s gross revenue and net property income respectively for the nine months ended 30 September 2009.
  
  
   

REIT Financial News - Cambridge reduces stake in MacArthurCook Reit

MACARTHURCOOK INDUSTRIAL REIT - NOTICE OF CESSATION OF SUBSTANTIAL SHAREHOLDING by Cambridge Industrial Trust Management Limited.


Date & Time of Broadcast: 30-Nov-2009 17:09:49
Date of change of Interest:     24-11-2009 
The change in the percentage level:    From 9.76 % To 2.73 %

CIT bought 26 million MI-Reit shares at an average of about 40 cents each early last month following news that MI-Reit was issuing new shares at a steep discount to market price and net asset value. Following this reduction of stake, CIT is now left with 13.3 million units or 2.73 per cent of total holdings, from 9.76 per cent previously. The sales of about 12.7 million units were at an undisclosed price.