Reits look good, for now

[brattzz]

It's info sharing, and good exchange of point of views, that's all, enjoy it!

[cif5000]

Very intelligent discussion. Most importantly, facts stand stronger than opinions, and if one can supply the facts to back his opinion, his respect will come mostly from the facts that he gathered than the opinion that he voiced.

I guess we need the facts, preferably supported with example(s).

1. The best assets will not be put into a REIT.
2. Their ability to pay back a loan is a pure coin toss.
3. Good REITs have assets that have generated cash flows for decades with minimal volatility.

++++++++++++++++++

One advantage I can think of for investors of REITs is that they don't have to carry the liabilities on their own balance sheets while "owning" the properties.

[yeokiwi]

I think I will just stick to my own mantra - all stocks are good at the right price.

I used to think like that too.
But, now, besides the price, I will take the management quality into consideration.
No matter how good is the price, if the management is not shareholders' friendly, I will not touch the stock even with a 3 foot pole.

REITs' management typically falls into the above category. During good times, they buy assets at high price and during bad times, they raise money via right issues.

But well, if the REITs' share price is so low that I can ignore the management quality, then it is probably worth investing.

[donmihaihai]

From various comments by DOG on REIT over the past 2-3 years, it is hard to believe he has not invested a sum into few REITs during the crisis. The reasons behind it can be as simple as despite the 'known' problems of REIT, there are well-run(seem to be well-run) REITs and as a group they were selling at depressed price back then.

While I respect DOG as an investor, I was crazy with what DOG has done. I believe any reasonable investor who do his/her own work by studying REIT structure, property companies and people management them will come up with conclusion while not exacting the same but won't be totally different. What DOG did is throwing out fishes.

Investors of property thru REIT or property company has the same effect. Liabilities is limited.

Property market is cyclical. While this history of REIT locally is relatively short, owning property and renting them out is not. Listed local property companies with investment properties arm has shown that profits swing. --- read annual reports of property companies that goes way back to 2000 or even late 1990s. REITs as a group will swing as well.

In Singapore, new commercial properties in Marina Bay area has been written as the best among all and what happened? 2/3 of part of MBFC has been "dumped" into K-REIT and Suntec REIT. It was the same for ORQ dumped by the same two property companies before the crisis. The other 1/3 owned by HK Land(part of Jardine Group) and managed these properties. They consider properties surrounding Marina Bay as prize assets and Jardine Group owned various properties there.

Same properties diff actions. To REIT or not to REIT? The answer may not depend only on whether it is best or lousy asset. A lousy can be easily dumped into a REIT as part of a whole package. The biggest factor might be what the management want.

[d.o.g.]

your thrust that NO reit can be a good investment is completely off the mark as is your understanding of developers- developers pay back loans? don;t make me laugh? yes, they pay back a loan for sure only to take another even bigger loan, and their ability to pay back a loan is a pure coin toss- will thsentiment be good for their overpriced properties?

To be clear, I have never stated that "NO reit can be a good investment". I have only been pointing out the fundamental conflict of interest between the trust manager and the unitholder. I have never said that REITs are poor investments; I already stated in an earlier post that during 2008-2009, buying a group of the REITs with strong balance sheets would have been a low-risk, high-return investment operation. I did exactly this, and it was highly profitable.

It is true that developers pay back loans and take on bigger ones. But that is the way their business is structured - as it grows the size and number of projects increase, so of course their loans get bigger. But the fact remains that the loans do get paid back, which is not true for REITs.

I do not think that developers rely on a "pure coin toss" when calculating whether they can pay back a loan - after all they can only realize a profit after paying back the loan with interest, and nobody aims to only breakeven after covering costs. The majority of the listed developers do make a profit on their projects, which suggests that their odds are a lot better than 50/50.

GOOD reits have assets that have generated cash flows for decades with minimal volatility- who is more risky?

I am not comparing the "risk" of REITs versus developers. I only stated that REITs do not repay their loans while developers do. I am not advocating that investors purchase developers over REITs, or vice versa. In fact, under normal circumstances I would not invest in either group, because property is fundamentally a low-return asset.

I would also like to point out that the quality of assets in a REIT is only one factor in assessing whether it is a "good" REIT. Management behaviour is also a major factor.

For example, Raffles City is a very good quality asset: large, well-located and well-maintained. But it is jointly owned by CMT and CCT, which have both conducted value-destroying rights issues.

Likewise, Suntec City is also a good property: large, near 2 MRT stations and well-maintained. But Suntec REIT bought marginal assets like Chijmes and Park Mall, and now it is buying 1/3 of MBFC at a 4% yield, which I feel is very aggressive.

[Stocker]

In Singapore, new commercial properties in Marina Bay area has been written as the best among all and what happened? 2/3 of part of MBFC has been "dumped" into K-REIT and Suntec REIT. It was the same for ORQ dumped by the same two property companies before the crisis. The other 1/3 owned by HK Land(part of Jardine Group) and managed these properties. They consider properties surrounding Marina Bay as prize assets and Jardine Group owned various properties there.

Hi donmihaihai,

Which company is this ORQ ? Please advise, thanks.

[ngcheeki]

Let me guess, it should be One Raffle Quay Commercial Building.

[yeokiwi]

One Raffles Quay (ORQ)...

So nice isn't it? The formula is perfect.
1) Bid for the land.
2) Construct the property
3) Dump the property at high valuation to REITs and get back the money.
4) Go to step 1.

Basically, the retail investors are asked to share the risk of high valuation.(it is seldom a low valuation....)
If the valuation goes higher, the retail investors get to earn the building rental yield happily.
If the valuation goes south, the REIT will call for a right issue.

Perfect.. Simply perfect.

Another difference between a REIT and a property developer. - There is no incentive for the REIT to sell the property at high valuation to anyone else.

[Blackjack]

Definitely some high quality posts going around this forum... I think this is what differentiates this forum from others, the presence of individuals who are willing to share their analysis and views rather than copy and paste direct

Another difference between a REIT and a property developer. - There is no incentive for the REIT to sell the property at high valuation to anyone else.

Not really. For instance Ascott Reit divested Country Woods at 60% above the property's valuation and redeployed its cash in its subsequent acquisition of European and Asian service properties sometime back. CCT also managed to realise 42.5% premium over valuation for the sale of Starhub Centre. So its not a case of buy-high-keep-forever. I guess asset managers on a whole also internalise a need within themselves to value add, the same way payroll employees do even though they do not directly own and share the profits of the companies they work for?

[Stocker]

This will be one of the best, if not the best forum we are going to witness. All forumers here are cordial and willing to share their knowledge and experiences.