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02-12-2010, 05:16 PM
Very interesting discussion here I just realised as I read through the different perspectives. I should have chanced on this thread earlier. I guess I'm one kid who is trying to have a go at the "school belle" as well, though not every "belle" in general appeals to me. I would have loved to consider myself as someone who loves value as well, so hopefully one can still co-exist between the 2 states?
Firstly on the point of reits being structured in general to favour owners (to cash out, earn management fee, reduce risks etc) and to market/hype to end investors (like myself), agreed totally. But which stock on the stock exchange is not listed in order to bring about some form of benefit to the original owners? (be it raising cash for expansion/operating expenses, securing future funding sources, increasing reputation to prospective business clients by being a listed entity, fleecing unwitting IPO investors to take over weak/falsified assets, etc etc)? Do you think stocks are listed because the rich folks behind genuinely wants you to have a piece of their business to share future profits and joy? In the same way, we can also say the best businesses will not be listed, as the business owners do not need your (institutional support/retail investors) to propel their growth. If they can remain unlisted and still grow, why not do so and enjoy 100% profit?
Simply put, in any transaction there are mutual benefits to both parties. There is no free lunch in this world. Investors are in reits or any other instruments because they find no other way to grow their assets in their own perceived safe way. This same group of investors may find it hard simply to achieve economy of scale with their minute assets and thus have to leverage on some platform (in this case, reits) to do so. Conversely some with adequate assets may buy their own private property and then decide to lease it out. Just because the original owners seem to be getting the sweeter deal in the way reits are structured doesn't mean it has to be a bad deal for reit holders. We make use of each other. Since I'm less useful, therefore I take less and give more. Its a fact of life. But both must gain.
Secondly, the fact that 1) weak assets are easily divested into a reit (whether its a bull or bear market in fact), and that the 2) best assets need never be divested is also true. I guess its up to an individual to define what are weak/unattractive assets for the first part of the argument, though that said, if weak assets can still be divested as attractive prices, why not? It may be done because there is no longer perceived capital growth nor redevelopment potential, or worse still, no more room for asset enhancement., or simply because the cash may indeed be deployed into higher growth areas. But that does not mean its a bad deal for reit investors? Reit investors naturally belong to a different psyche where they may not necessarily require gleaming growth to consider attractive. Same for retirees who prudently put their cash in fixed deposits and are shielded from the crisis. No good no bad, just a personal comfort and perceived returns. For the second part, I guess it needs no further elaboration. No free lunch remember? Even pre-ipo investors who seem to be getting the sweetest deal has to bear the risk of the business failing at an early stage. Similarly for those anchor institutions in IPO placements, they may be needed for their "established name" to support the issue, in the same way they need to deploy their cash somewhere where they perceive can still grow.
Thirdly, to call reits something waiting to fail or simply something not viable for investors may not be fair as well, much less apply a blanket view that all reits eventually or inevitably cost the investors losses in the form of cash calls. Value destruction does not mean you cannot make money out of it. I have held/am currently holding (so my views are biased obviously) Ascott reit, Starhill reit, First reit, Suntec reit, Saizen reit and CCT previously. With the exception of Saizen (which I've cut loss after failing to anticipate such a dilutive rights issue previously), I have made profits from all these other reits, so obviously I will not rule out reits to be a viable investment tool. In fact the gains from reits category in my investment portfolio is pretty significant overall from the realised and yet to be realised profits. Compared to stocks, I feel its far simpler to decide which are good buys and which are not, cos there are really less factors to consider. Not just reits alone, but don't we also have our own set of rules to decide what makes us money even when we invest in companies (not reits)?
In essence, it may be pretty unfair to eliminate reits as a natural choice for investments simply because we as retail investors do not get a sweet enough deal as compared to the reit managers.
Firstly on the point of reits being structured in general to favour owners (to cash out, earn management fee, reduce risks etc) and to market/hype to end investors (like myself), agreed totally. But which stock on the stock exchange is not listed in order to bring about some form of benefit to the original owners? (be it raising cash for expansion/operating expenses, securing future funding sources, increasing reputation to prospective business clients by being a listed entity, fleecing unwitting IPO investors to take over weak/falsified assets, etc etc)? Do you think stocks are listed because the rich folks behind genuinely wants you to have a piece of their business to share future profits and joy? In the same way, we can also say the best businesses will not be listed, as the business owners do not need your (institutional support/retail investors) to propel their growth. If they can remain unlisted and still grow, why not do so and enjoy 100% profit?
Simply put, in any transaction there are mutual benefits to both parties. There is no free lunch in this world. Investors are in reits or any other instruments because they find no other way to grow their assets in their own perceived safe way. This same group of investors may find it hard simply to achieve economy of scale with their minute assets and thus have to leverage on some platform (in this case, reits) to do so. Conversely some with adequate assets may buy their own private property and then decide to lease it out. Just because the original owners seem to be getting the sweeter deal in the way reits are structured doesn't mean it has to be a bad deal for reit holders. We make use of each other. Since I'm less useful, therefore I take less and give more. Its a fact of life. But both must gain.
Secondly, the fact that 1) weak assets are easily divested into a reit (whether its a bull or bear market in fact), and that the 2) best assets need never be divested is also true. I guess its up to an individual to define what are weak/unattractive assets for the first part of the argument, though that said, if weak assets can still be divested as attractive prices, why not? It may be done because there is no longer perceived capital growth nor redevelopment potential, or worse still, no more room for asset enhancement., or simply because the cash may indeed be deployed into higher growth areas. But that does not mean its a bad deal for reit investors? Reit investors naturally belong to a different psyche where they may not necessarily require gleaming growth to consider attractive. Same for retirees who prudently put their cash in fixed deposits and are shielded from the crisis. No good no bad, just a personal comfort and perceived returns. For the second part, I guess it needs no further elaboration. No free lunch remember? Even pre-ipo investors who seem to be getting the sweetest deal has to bear the risk of the business failing at an early stage. Similarly for those anchor institutions in IPO placements, they may be needed for their "established name" to support the issue, in the same way they need to deploy their cash somewhere where they perceive can still grow.
Thirdly, to call reits something waiting to fail or simply something not viable for investors may not be fair as well, much less apply a blanket view that all reits eventually or inevitably cost the investors losses in the form of cash calls. Value destruction does not mean you cannot make money out of it. I have held/am currently holding (so my views are biased obviously) Ascott reit, Starhill reit, First reit, Suntec reit, Saizen reit and CCT previously. With the exception of Saizen (which I've cut loss after failing to anticipate such a dilutive rights issue previously), I have made profits from all these other reits, so obviously I will not rule out reits to be a viable investment tool. In fact the gains from reits category in my investment portfolio is pretty significant overall from the realised and yet to be realised profits. Compared to stocks, I feel its far simpler to decide which are good buys and which are not, cos there are really less factors to consider. Not just reits alone, but don't we also have our own set of rules to decide what makes us money even when we invest in companies (not reits)?
In essence, it may be pretty unfair to eliminate reits as a natural choice for investments simply because we as retail investors do not get a sweet enough deal as compared to the reit managers.