Reits look good, for now

(20-11-2010, 05:17 PM)dydx Wrote:

(20-11-2010, 04:51 PM)pianist Wrote: for me i dun realli like reit for its cash-call which usually will reverse back/eat back all the reit distribution received by a reitholder..

This to me is like many people - including many unsuspecting retirees - happily taking in their daily meals (the regular, predictable dividends from a Reit), and suddenly and unexpectedly, have to vomit out everything they have swallowed, plus their guts! This must be quite a painful experience!

Excellent e.g....i bot my these Reits & Trusts during IPO, cambridge, Maccook, FSL, Rickmer, thinking it a good retirement passive income, but i the end kena vomit out until go ICU, hehe...painfully cut loss at aro 45%.

REITS IS A TIME BOMB...look at CapitaLand and Keppel Land formed Capital Mall, Retail,Comm, etc and Keppel created K-Reit, grossly over-value the properties than put on IPO, collected a big fat sum of money and yet still in control of the properties by forming asset mgt and trustee companies for regular service provider fee.... I think sooner or later Metro also want to form Reit...sure win no loss type of business...Salute to Li ka Shing, 10 yrs ago he oreli saw these potential business method dat squeeze money from the retailers.

Personally, I will stick with business trust with very low payout ratio (should be less than their profits) so that NAV can grow organically with retained earnings being used to partially fund new acquisitions. Such a company would have similar payout structure as a listed company. REITs do not qualify since they have the 90% payout rule. With that being said, I believe that all companies are good companies at the right price so if a decent REIT is trading at a double digit yield, I don't mind entering !

NEA should form a hawker centre REIT...huat ah!
HDB can also form an industrial REIT easily ..haha..

if hdb were to ipo reit --> there will be many more people unabling to afford a roof..retail reit squeeze tenants..likewise a hdb reit will squeeze the residents with hike in property maintenance fees, water & electrical fees, & mgt fees..

recently in e business times..there was an article on the reowned hotel park group mulling a IPO reit by the end of this year...

(20-11-2010, 05:17 PM)dydx Wrote:

(20-11-2010, 04:51 PM)pianist Wrote: for me i dun realli like reit for its cash-call which usually will reverse back/eat back all the reit distribution received by a reitholder..

This to me is like many people - including many unsuspecting retirees - happily taking in their daily meals (the regular, predictable dividends from a Reit), and suddenly and unexpectedly, have to vomit out everything they have swallowed, plus their guts! This must be quite a painful experience!

wow, you guys are scaring the hell out of me

my little contrib on properties & reits (these are just imho):

i'm not sure how to handle commodities to make out a sensible investment thesis on these. e.g. investment criteria, risk management, etc, any 1 care to share?

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another group of stocks which has similar bubble like, volatile behavior is perhaps property asset stocks (e.g. UIC, UOL etc) and REITS

properties, however, are simplier and much more predictable compared to commodities
rising property prices in part is due to demand & is heavily linked to a large extend to the credit bubble (i.e. when interest rates are low & conditions for loans are easy (e.g. 90% loans) and favourable), property bubble would inflate at the speeds of the credit bubble (money printing)

the investment thesis / risk management objective can then be :
1) find stocks / reits which are not priced excessively above (preferably below) the book (NAV) value, one should take NAV based on rececession levels as asset prices would be low (that would give much higher margin of safety)

2) and most important have low/lower amounts of debts on the balance sheet

the logic for such is simple, in an unfortunate event of a market crash / properties are bound to be hit (severely). NAV would fall and debts would multiply the effect of the fall, not to mention the market fear that the company would issue shares to save itself or face insolvency. This would lead to steep price falls on such stocks.

for REITs, many are attracted by dividends/distributions yield, over-emphasizing on such yields have a danger of overlooking the safety aspects / built-in risks as leverage may potentially provide better yields when demand is strong / market is good -> rents are high, if interest rates are sufficiently low, the margin between the rental yields against interest expense become a multiplying effect of the debt / leverage itself (i.e. make more $ from other people's $)

just 2 cents
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btw finding a reit / property stock meeting the 2 criteria above is near zero now? lol

To me, Reit is just like another instrument that has to be evaluate just like any other stocks.
Do your homework right, you might able to make some $$$ out of it.

Initially, I was also skeptic about Reit after knowing how it was operated upon. Before 2009, I stayed out of it despite my friends (including those who are financial advisers) heavily recommend them to me.
I told them it was relatively new and untested in a crisis.
Moreover, like d.o.g has mentioned, the primary purpose of Reit is to benefit the parent company.
Therefore reliability and capability of the Reit manager to look after the investor interest (even though it is the secondary priority) should be the topmost concern as it is difficult to judge the better apples verse the bad ones when everything is going smoothly.

True enough, the financial crisis has separated out the better one from the bad ones. We have seen those poorly managed run into different kinds of trouble and one even punt with its investor's $$$ into another Reit w/o checking the regulation first.

Satisfy with what I have saw, I invested into some of the Reits when it provide good return with certain safety margin. So far, I satisfy with what I got.

Of course, not only the risks that have already discussed in the forum, you might also think about the following risk:
The dividend you receive from the Reit should consider as revenue of your investment, not profits, as it has not deduct the cost of good (E.g. the lease of its buildings, major rework of the building). Hence, there may be a chance that you may need to top-up (cash calls) to fund new buildings. The old ones are sold at a discount to the parent company and most likely acquired at a higher price in future (Think K-Reit)

If you want to know more about Reit, you may also want to read the book 'Playing the Reit game'.

To conclude, I would say Reit has its good and bad points. It is how well you can handle the risk and make something out of it.
Of course, if you are not comfortable, stay out of it and don't get burnt.

reits & properties asset stocks (e.g. capland, uol, uic etc) could be useful to those who luv to time the market erm economic cycles, lol
btw that's a highly hazardous game & requires pretty intense monitoring as opposed to simply dividend play
the notion is to time the economic bottom & economic top, but very likely 1 could have exited much too early or held on too late when a black swan strikes (e.g. a major bank failure somewhere in the world)

that said:
reits & property stocks (in particular) are a viable alternative to investing / speculating in properties directly, it is as good as owning minute pieces of real estates for each share

Well, buying REITS and stock is th same..

BUY LOW AND SELL HIGH !!

REITS has pretty stable yield and makes a good income vehicle..

Even when you buy the stock of the company, you need to look at the financials and then determine whether the management of the company is doing a good job..
Likewise for REITS...

Personally, I am holding MAPLETREE LOGISTIC TRUST and SAIZEN REITS...

And I am definitely not disappointed...

MLT management has done a very good job steering this REITS and the cash call made is backed with good reasons..
As for Saizen, I believe that it is totally undervalued and it is a contrarian play for me..

At the end of the day, one should be comfortable with the counters they hold..Be it stock, REITS, TRUST, etc...

The fact that REITs and business trusts are created to benefit either asset owners who wish to divest, or managers who wish to create an income stream, is neither good nor bad. It just is.

Investors simply have to understand this when doing their due diligence and not invest based on the yield alone. Management behaviour (rights issues, debt refinancing, acquisitions etc) can and will drastically change the future yields.

Just because the structure of REITs encourages value-destroying behaviour (debt-funded acquisitions in bull markets) doesn't mean that all managers behave this way. The sensible ones keep gearing low. At the right price, such REITs can be fantastic investments.

In the 2008/2009 stock market crash/recovery, some of the biggest capital gains were recorded by REITs. IIRC one of the big winners was CDL H-REIT. In the bear market, one could have safely bought all the REITs with strong balance sheets, and obtained both high income and good potential for capital gains. As a group, they were low-risk, high return investments. Note the past tense!

Conversely, some of the worst losses were also recorded by REITs. Essentially, everyone who did a rights issue destroyed shareholder value e.g. CMT, CCT, MLT, K-REIT (twice), Starhill, Fortune etc. With the exceptions of Starhill and Fortune, all of them had horrible balance sheets that were train wrecks waiting to happen.

Starhill was unusual in that the management actively chose to destroy value - despite low gearing and their debt not being due for over a year, they raised cash at the bottom of the market, then let it sit around until they bought the Malaysian properties much later. Ditto with Fortune - the purchase of the Cheung Kong properties was a massively DPU-negative transaction.

As for normal companies, the division between ownership and management also encourages value-destroying behaviour, since managers are paid salaries and bonuses before shareholders get dividends. Therefore the temptation is to take maximum risk, since if it works there is a big bonus waiting, and if it doesn't work the shareholders cough up for the rights issue.

Does this also mean that one should not invest in stocks at all? Of course not. But it behooves the investor to inform himself of the risk/reward equations faced by the key managers so that he can understand how the managers are likely to behave.

Again, not all managers behave badly. Normally the owner-managers are better behaved, since they are the biggest shareholders and must cough up money in a rights issue if they screw up. Notice that the family-run UOB and CDL did not have any rights issues during the crisis, in contrast to the professionally-managed DBS, Capitaland and NOL.

There are of course bad owner-managers and good professional managers. But my experience has led me to favour owner-managed companies.

As usual, YMMV.