nextwave Wrote: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.
nextwave Wrote: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.