ESR LOGOS REIT

[Dosser]

ESR has now fallen to 20c, with an expected annual yield of over 10%. The gearing ratio is high, over 44%. I wonder if they will do what they have done previously during downturns, a big rights issue with a very low price to reduce gearing, say 1 for 2 at 15c (just guessing). Looking back, most of my profits on REITs have come from applying for both rights and a multiple of excess rights when REITs are out of favour and offering high yields - e.g. ESR, FIRST REIT and Fortune REIT, Fortune back in the days of the GFC when they were still listed in Singapore - and then selling when high yield and low gearing looked attractive compared with low market interest rates, pushing up the price. I tend to keep a small residual holding of some REITs that I have mostly sold just in case they do a big rights issue at a low price, as the money is made by being granted excess rights and a big holding is not needed for this. Looking over the list of SREITs, many of them have high gearing and high yield when interest rates are falling, so I suspect that we may see a good number of rights issues.

[weijian]

ESR has now fallen to 20c, with an expected annual yield of over 10%. The gearing ratio is high, over 44%. I wonder if they will do what they have done previously during downturns, a big rights issue with a very low price to reduce gearing, say 1 for 2 at 15c (just guessing). Looking back, most of my profits on REITs have come from applying for both rights and a multiple of excess rights when REITs are out of favour and offering high yields - e.g. ESR, FIRST REIT and Fortune REIT, Fortune back in the days of the GFC when they were still listed in Singapore - and then selling when high yield and low gearing looked attractive compared with low market interest rates, pushing up the price. I tend to keep a small residual holding of some REITs that I have mostly sold just in case they do a big rights issue at a low price, as the money is made by being granted excess rights and a big holding is not needed for this. Looking over the list of SREITs, many of them have high gearing and high yield when interest rates are falling, so I suspect that we may see a good number of rights issues.

Hi Dosser,

Thanks for sharing your real experience in making money off REITs. And that is probably how money is largely made off such "asset heavy, low ROIC" instruments.

After initial denial by Powell that inflation is transient, interest rates subsequently went up with a vengeance. The end result is most REITs investors had seen a drop in DI since then. IIRC, most forward looking REIT managers had carried out a rights/private placement much earlier, lets say 2023 when market prices were much higher and hence potential dilution less. Alternatively, they sold assets to de-lever and for us OPMIs, the premium at book value (or lack of) is indicative of the asset quality and market valuation of the REIT itself, just as much as the actions taken by the REIT manager themselves in the last few years.

GFC2008 was a credit event that started from banks. Most banks then held back on their loans to derisk themselves and so REITs had to turn to more permanent capital, ie. equity. Old timers will remember that even DBS did a deeply discounted rights from "a position of strength" back then. Compared to 2008, banks are now probably more willing to refinance REITs' debt than not, I suppose.