Analysing REITS

Nick

(29-09-2011, 12:32 PM)Nick Wrote:

(29-09-2011, 10:56 AM)Stocker Wrote:

(28-09-2011, 10:46 AM)Stocker Wrote: One question need to be clarified ; Why do reits need to pay for trustee fees ?

Can anyone here help to advise me on this issue, Tks.

I think the Trustee acts as the custodian for the assets held by the Trust. The unit-holders own the Trust whose assets are under the custody of the Trustee and those assets are managed by a REIT and Property Manager. I think our SGX listed BMT is a Trustee for a few trust ? Trustee and Manager are one and same in the shipping trust. The fees payable to the Trustee is pretty small so I won't pay too much attention to it. Please correct me if I am mistaken.

Nick,
Thanks for replying me. I though our shares/Units are deposited with CDP, so why is there a need to have extra custodian ?

Nick Wrote:I think the Trustee acts as the custodian for the assets held by the Trust. The unit-holders own the Trust whose assets are under the custody of the Trustee and those assets are managed by a REIT and Property Manager. I think our SGX listed BMT is a Trustee for a few trust ? Trustee and Manager are one and same in the shipping trust. The fees payable to the Trustee is pretty small so I won't pay too much attention to it. Please correct me if I am mistaken.

Custodians act like storage containers for assets owned by others. Trustees use custodians to hold assets on behalf of trust beneficiaries.

The 2 roles are different (and paid separately).

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Stocker Wrote:I though our shares/Units are deposited with CDP, so why is there a need to have extra custodian ?

CDP holds your shares/units. But for a REIT, your units represent an interest in a Trust. The Trust itself must have its assets held with a custodian. CDP is only a custodian for SGX-listed securities, it cannot hold physical real estate, ships etc.

Therefore with a REIT you have:

CDP as custodian for your REIT units
ABC Trustee as trustee for the REIT
XYZ Custodian as custodian for ABC Trustee

All 3 jobs are different and are paid separately. Luckily so far CDP is not charging for shares, REIT units or shipping trust units, but it is charging for SGS.

Thanks d.o.g. .

before custodian CDP, I remember the time when the 3 local banks acted as custodian for SGS bonds, then it was FOC at least for successsful auction bids for T-bills

(29-09-2011, 02:30 PM)d.o.g. Wrote: Luckily so far CDP is not charging for shares, REIT units or shipping trust units, but it is charging for SGS.

I think they are charging in an indirect way every time you trade by paying clearing fee and trading fee (they seems to call it access fee now).

I will be peeved if they CDP start charging custodian fee.

Business Times - 07 Nov 2011

Office, industrial Reits face rental squeeze

About 933,000 sq m of gross floor area of office space is in the pipeline from GLS sites awarded this year

By MINDY TAN

(Singapore)

IN current volatile times, real estate investment trusts (Reits) have emerged as favourites for defensive plays. But analysts caution that investors should still be highly selective with Reits, as not all will be equally resilient to economic shocks.

In particular, rents might be an area of concern for office and industrial Reits, analysts say.

According to URA statistics, about 933,000 square metres of gross floor area (GFA) of office space is in the pipeline, with more to come, from the Government Land Sales (GLS) sites awarded this year.

With 62 per cent of the space, or 574,000 sq m currently under construction, this could add stress to rents.

Median office rental rates rose by 9 per cent in the third quarter, to $9.49 psf per month. Occupancy rate for prime offices improved 2.7 per cent quarter on quarter.

In October, K-Reit Asia announced that it was purchasing an 87.5 per cent interest in Ocean Financial Centre from its parent company, Keppel Land - for a period of 99 years - for $1.57 billion.

Following the announcement, Moody's Investors Service changed its outlook on K-Reit's 'Baa3' corporate family rating to positive from stable. Standard & Poor's Ratings Services (S&P) has initiated coverage with a 'BBB' long-term corporate credit rating and a 'stable' outlook.

DBS Group Research too was largely positive on the deal, which values the asset at $2,600 per square foot, inclusive of income support. 'Although timing was a little unexpected, we see this deal as a strategic long term positive for K-Reit with the ability to deepen its presence in the prime CBD area, upgrade its portfolio quality and ensure strong and stable income stream for unitholders through long leases and bluechip tenant base.'

Separately, Suntec Reit issued two announcements in quick succession, following its third-quarter earnings announcement, which saw distribution per unit of 2.533 cents, up 1.2 per cent year on year.

The first, its divestment of Chijmes for $177 million, was well-received by analysts. DBS Group Research noted that the divestment was a 'small but nice surprise', given that 'while the property performance has been consistent, in our view it may not be a good fit to Suntec Reit's current portfolio'.

News of the $410 million asset enhancement initiative (AEI) - $230 million for Suntec City Mall and $180 million for Suntec Convention Centre - on the other hand, met with mixed reactions.

While some analysts said that the AEI was necessary to keep Suntec City relevant, others argued that the resultant gearing might be too high. According to Standard Chartered, the Reit's gearing could rise to some 42 per cent upon completion of the project, although it qualified that this was likely to be mitigated by the gradual nature of the expenditure.

'We continue to think that Suntec Reit could sell assets to raise equity to reduce its gearing. Strata office spaces in Suntec Office Towers could be sold, or Park Mall could be divested. If (it) manages to sell Park Mall at 20 per cent above current book value of $338 million, gearing could fall to approximately 38.5 per cent.

'However, this could still seem high as the Reit's gearing could rise to some 47 per cent if office capital values fall 25 per cent as we forecast.'

Over in the industrial sector, Credit Suisse warned that perception of industrial Reits' defensiveness, due to its longer lease tenures is misplaced, citing high industrial rents, and Singapore's high exposure to the United States and European economies.

Industrial rents have not only surpassed pre-subprime crisis peaks but are at 10-year highs, said Credit Suisse.

'We expect flat to low single-digit growth for factory rents driven by high occupancy, and business park rents to moderate from hereon due to the oncoming supply pressure (including new supply of decentralised office space).'

Standard Chartered, in a report released mid-October, agreed with the prognosis, citing high supply and falling office rents as key contributors to falling business park rents.

'We expect business park rents to fall from the current $3.60 psf per month to $3 psf per month by end-2012E and $2.50 psf per month by end-2013E. This implies a 30 per cent decline over the next two years, ie back to 2007-levels.'

Standard Chartered had earlier cut prime office rents forecast by 25 per cent, due to low leasing activity and expectations of slower growth in 2012. The slower demand for office space is expected to spill over to business parks, suppressing tenants' willingness to pay for higher rents, it said.

In the retail sector, analysts were generally optimistic on Frasers Centrepoint Trust. UOB Kay Hian expects Causeway Point to be the key growth driver in 2012, seeing as how it recorded strong rental reversions of 9-22 per cent in FY11, and is on track to reach 22 per cent NPI growth post-AEI.

While the acquisition of Bedok Point diversifies FCT's portfolio, UOB also noted that there was room for improvement, particularly in the areas of the unoccupied space in the basement, and lack of strong anchor tenants.

It maintained a 'buy' call, with an unchanged target price of $1.75.

Business Times - 15 Nov 2011

Hock Lock Siew
Don't let Reits be the next wave of governance lapses

By WONG WEI KONG

SINGAPORE boasts of a thriving real estate investment trust or Reit sector, but recent events have served another reminder that beneath the glowing surface, there are some key fundamental concerns.

K-Reit Asia, last week, pushed through its plan to buy 87.5 per cent of Ocean Financial Centre (OFC), and raise some $976 million through a rights issue to fund part of the cost. It had earlier announced that it would pay some $1.57 billion to buy parent company Keppel Land's entire stake in the OFC office building. Keppel Land will see a net gain of about $492.7 million from the sale.

Put before shareholders for their approval at an extraordinary general meeting (EGM), the proposal ran into howls of protest. Shareholders questioned the stiff price and timing of the deal, at a time when the economy is facing a slowdown. Shareholders noted that while the prime Grade A office building in Raffles Place has a tenure of 999 years with 850 years remaining on the lease, KepLand is selling its stake with only a 99-year lease. Others questioned why K-Reit is paying its manager (which is owned by KepLand) an acquisition fee - even though it is buying the asset from its parent company. There were also rumblings about the independence of the manager.

In a nutshell, the EGM brought to the fore two key issues relating to Reits here that corporate governance advocates have been highlighting for some time: sponsor groups offloading assets to their Reits on terms that seem disadvantageous to the Reits, as well as the apparent lack of independence of the Reits. K-Reit chairman Tsui Kai Chong's comment that 'Our father organisation, Keppel Land, is only willing to sell it (OFC) to us for 99 years', says it all. And the fact that both resolutions - to buy the OFC stake and for the rights issue - were passed with a show of hands, after a bid by institutional investor to vote by poll was denied, simply drives home the point.

This isn't the first time - and probably it won't be the last - that issues like these arise at a Reit. For some time now, there has been growing disquiet among corporate watchers about weaknesses in the corporate governance structures in Singapore Reits.

Earlier this year, a review of Asia-Pacific Reit markets by the CFA Institute produced less-than-assuring results. Looking at the governance of Reits in Singapore, Australia, Hong Kong and Japan, the institute in its report called strongly for Reit managers to be independent. In the current most common scenario, the Reit sponsor wholly owns the Reit manager, and also holds a large stake in the Reit.

And even before the latest K-Reit development, cases of sponsors selling properties to Reits have triggered concerns about conflict of interest, and unitholders have often questioned the purchase of these assets and how they were priced. The CFA Institute said that to better protect ordinary unitholders, most directors on the boards of Reit managers should be independent of management, sponsors and substantial unitholders. This should be made law, rather than just a best-practice guide. There is also the need to have more transparent structures to pay Reit managers and to tie these more closely to performance, and indeed to require all Reits to hold annual meetings for unitholders.

Reits are often presented as defensive plays, and given their yield structures, there is some truth in this. But it would be unfortunate if investors buy into Reits for their relative safety just to have their interests as minorities undermined by weak corporate governance structures. If nothing is done, the Reit sector could be where the next wave of governance lapses emerge, and that would be a pity for a sector that has done quite well so far.

MW, it's a very good posting for people like me/us. Thanks.

"Our father organisation, Keppel Land, is only willing to sell it (OFC) to us for 99 years', says it all."

This is something what i called(whether plants or animals or businesses) "in-house breeding". We all know nature abhors "in-breeding".
Sold all my K-REITS in SEPT 2010 for the same reason as "Our father organisation, Keppel Land, is only willing to sell it (OFC) to us for 99 years', says it all."
Fortunately, still made a little profit.

I was there during the K-reit EGM - was a friend of the institutional investor who bid for voting by poll.

One of the weird things which occurred was the fact that proxy queue for the EGM was many times longer than the queue for unit holders. I highly suspect that it was due to the fact that K-reit got its own staff to vote by hands in the EGM.

Terrible corporate governance..

There is nothing surprising here. REITs exist for a reason.