Suntec REIT

Personally, I find most business trust listed here to be poor investments. Nearly every REIT (if not all) are fairly valued at the moment. As for the Suntec/K-REIT deal - there might not be much gain initially, but if you have a long term out-look, that particular asset may rise in significance and value. Big if though

I guess this is why we are starting to see the listing of property developer trust here since it negates asset dumping completely.

(30-11-2010, 12:14 PM)Nick Wrote: Personally, I find most business trust listed here to be poor investments. Nearly every REIT (if not all) are fairly valued at the moment. As for the Suntec/K-REIT deal - there might not be much gain initially, but if you have a long term out-look, that particular asset may rise in significance and value. Big if though

I guess this is why we are starting to see the listing of property developer trust here since it negates asset dumping completely.

Well, Suntec REIT was the third REIT to be listed in Singapore (after A-REIT and CCT), thus the assets are still of somewhat higher quality than many of the REITs which subsequently listed during the peak of the bull market back in 2007.

To be honest, I've received my fair share of dividends over the 5.5 years that I've owned Suntec REIT, such that I've probably recouped at least 50% of my cost by now. So as the saying goes - if you go in early when an asset class is still somewhat not so "recognized" and hence is under-valued, there is potential for decent upside.

Just my views though, please feel free to disagree.

(30-11-2010, 01:57 PM)Musicwhiz Wrote:

(30-11-2010, 12:14 PM)Nick Wrote: Personally, I find most business trust listed here to be poor investments. Nearly every REIT (if not all) are fairly valued at the moment. As for the Suntec/K-REIT deal - there might not be much gain initially, but if you have a long term out-look, that particular asset may rise in significance and value. Big if though

I guess this is why we are starting to see the listing of property developer trust here since it negates asset dumping completely.

Well, Suntec REIT was the third REIT to be listed in Singapore (after A-REIT and CCT), thus the assets are still of somewhat higher quality than many of the REITs which subsequently listed during the peak of the bull market back in 2007.

To be honest, I've received my fair share of dividends over the 5.5 years that I've owned Suntec REIT, such that I've probably recouped at least 50% of my cost by now. So as the saying goes - if you go in early when an asset class is still somewhat not so "recognized" and hence is under-valued, there is potential for decent upside.

Just my views though, please feel free to disagree.

I certainly do agree with you. There were plenty of golden opportunities in the REIT and biz Trust sector in 1H 2009. I would consider Suntec REIT to be one of them then. It will be quite interesting to see how the yield sector evolve in the next 5 years. Personally, I am keeping an eye out for any proven property developer trust and well-managed business trust (ie shipping trust). These are new asset classes and it will be exciting to see how they evolve (or fail) in this decade.

Out of curiosity, was this your first stock ?

(30-11-2010, 02:04 PM)Nick Wrote: Out of curiosity, was this your first stock ?

Yes! It was my first IPO, first stock and very first foray into equities. That was back on December 5, 2004.

I guess it still has some sentimental value for me!

(30-11-2010, 12:14 PM)Nick Wrote: Personally, I find most business trust listed here to be poor investments. Nearly every REIT (if not all) are fairly valued at the moment. As for the Suntec/K-REIT deal - there might not be much gain initially, but if you have a long term out-look, that particular asset may rise in significance and value. Big if though

I guess this is why we are starting to see the listing of property developer trust here since it negates asset dumping completely.

My view of REITS is : for trusts with assets mostly in Singapore they are ok, generally speaking. The issues are around structure, they way they are generally run and the inherent conflict of interest between the sponsors (and by extension the manager in most cases) and the unitholders.

If I manage to buy a REIT for 9-12% yield, the last thing I want the monkeys running the place to do is to 1) buy other things at 5-7% or 2) do rights issue at 15% which can both happen to the same REIT just at at different times. So you get whacked twice.

Best thing is for them to do nothing. However they can't do nothing, since they can't justify the presence of a high salaried overhead to sit on top of the assets and cream off 1-2% of the value (almost 20-30% of the rental income).

Unitholders are better off with monkeys running the REIT, in most cases.

(30-11-2010, 02:35 PM)thefarside Wrote:

(30-11-2010, 12:14 PM)Nick Wrote: Personally, I find most business trust listed here to be poor investments. Nearly every REIT (if not all) are fairly valued at the moment. As for the Suntec/K-REIT deal - there might not be much gain initially, but if you have a long term out-look, that particular asset may rise in significance and value. Big if though

I guess this is why we are starting to see the listing of property developer trust here since it negates asset dumping completely.

My view of REITS is : for trusts with assets mostly in Singapore they are ok, generally speaking. The issues are around structure, they way they are generally run and the inherent conflict of interest between the sponsors (and by extension the manager in most cases) and the unitholders.

If I manage to buy a REIT for 9-12% yield, the last thing I want the monkeys running the place to do is to 1) buy other things at 5-7% or 2) do rights issue at 15% which can both happen to the same REIT just at at different times. So you get whacked twice.

Best thing is for them to do nothing. However they can't do nothing, since they can't justify the presence of a high salaried overhead to sit on top of the assets and cream off 1-2% of the value (almost 20-30% of the rental income).

Unitholders are better off with monkeys running the REIT, in most cases.

Generally, it depends what is the Sponsor intentions. I noticed that Lippo seems to be a decent sponsor judging by the relatively strong balance sheets of its listed REITs - LMIR and First REIT. The latter has distributed consistent DPU since inception regardless of the economic situation.

Personally, Management plays a huge role in how the Trust evolves. Quality of assets isn't as important as management quality. Unfortunately, it will take a terrible property market crash to see which Management team excels. In late 2008, the liquidity crisis exposed the inherent weakness behind the REIT system - using short term loans to fund long term purchases. This is a terrible system because it contradicts the very purpose behind the REIT which is to provide defensive returns to shareholders by making the Trust as anti-cyclical as possible. Yet, this loan structure forces the Trust to embrace two terrible market cycles - i) the credit cycle and ii) property valuation cycle. It is hence not surprising to see some REITs with loans maturing in 1H 09 (Mi-REIT, CIT, Saizen) getting into trouble with their lenders. This problem is further exacerbated by the REIT inability to take on long term amortizing loans due to the minimum payout ratio. There is no point making your operations anti-cyclical when your capital structure is. It is like wearing a raincoat in the middle of the Tsunami - either way, you are gg to get wet.

A good case study would the local shipping trust. The three shipping trust under-went a terrible shipping recession (worst since the 80s) yet the one with least attractive assets prospered while the one with the highest quality of assets almost went under. The key difference wasn't asset quality - it was the Trust Manager quality.

I came to realize that most business trust assets (properties, vehicles etc) are terribly cyclical. Hence Management team needs good foresight to determine when is the right time to enter and make acquisitions and similarly, when they should divest and remain cash-strong. Since all REITs and Trust have similar Management fee structure, it is wise to stick with the best team with a proven track record. I guess 2009 thrashed the fallacy of REITs and Trust being a defensive and anti-cyclical sector.

Disclosure: Vested in REITs and Biz Trust

Suntec REIT launched its IPO @ $1.00 nearly 6 years ago

Till date, it has distributed $0.4972/unit worth of dividends to unit-holders over the past 6 years.

Its current share price stands at $1.58.

This implies a total investment return of $1.0772 for IPO unit-holders or a 107.7% gain.

In other words, Suntec has given a non-compounded annual return of 17.9% to its IPO unit-holders.

I think it is pretty commendable considering it did not once turn to unit-holders for fund raising through a rights issue !

> I think it is pretty commendable considering it did not once turn to unit-holders for fund raising through a rights issue !

They did a placement twice in last 2 years - to external players. So there was dilution.

(15-01-2011, 09:24 PM)Contrarian Wrote: > I think it is pretty commendable considering it did not once turn to unit-holders for fund raising through a rights issue !

They did a placement twice in last 2 years - to external players. So there was dilution.

If the DPU remains similar, then I don't think any dilution would have occurred.

(Not Vested)

(15-01-2011, 09:41 PM)Nick Wrote:

(15-01-2011, 09:24 PM)Contrarian Wrote: > I think it is pretty commendable considering it did not once turn to unit-holders for fund raising through a rights issue !

They did a placement twice in last 2 years - to external players. So there was dilution.

If the DPU remains similar, then I don't think any dilution would have occurred.

(Not Vested)

the assumption here is that it can last for ever and pay similar dividend for ever.

if suntec reit is to go under tomorrow, how could you justify any return?