Reits look good, for now

[yeokiwi]

hi yeokiwi, what is your rational of this comparison. i find it facinating that big us companies can grow to that extend. in asia there isn't alot of good cases like that.

Hi Drizzt,

There was a discussion of using yield based on purchased price or current market price. I am giving an extreme example of the yield that is based on purchased price. The yield can go to astronomical value.
I had friends that believed in holding the stock simply because the yield on purchased price was high. I thought the approach was incorrect.
Yield on purchased price is good for checking how good is your past selection. But, it should not be used as a reason for holding on to the stock.

For Asia, I suppose some of the China companies may approach that kind of growth.

Actually, it is rare to have this kind of multi-industries company around.

From wikipedia...

GE participates in a wide variety of markets including the generation, transmission and distribution of electricity (e.g. nuclear, gas and solar), lighting, industrial automation, medical imaging equipment, motors, railway locomotives, aircraft jet engines, and aviation services. It co-owns NBC Universal with Comcast. Through GE Commercial Finance, GE Consumer Finance, GE Equipment Services, and GE Insurance it offers a range of financial services as well. It has a presence in over 100 countries.
GE gauges to control a railway locomotive at a museum near Saskatoon, Canada[29]

GE has also General Imaging produces digital cameras with some decent feature at a reasonable price.[30] Even at 2010, General Imaging has released the cheapest Bridge Camera GE X5: 14MP, 15x optical zoom for only $139.00.[31]

[Blackjack]

Agreed that it certainly makes sense to consider current market price instead of historical whilst contemplating whether to sell, considering the opportunity costs of not doing so. Otherwise one would always be comparing between a low historical cost (of held assets) versus a higher cost (of an alternative asset to switch to)!

I also came across this research study previously which measures the correlation of reits valuation versus different parameters. Thought I will share this if there's anyone interested.

High correlation:

1) Total Debt to Total Market Cap (-): Negative due to adverse affects on shareholder value from high leverage, debt payments,bankruptcy risk (-31%).

2) Cash Available for Distribution (-): Negative due to perception that management is holding cash that should be paid out to shareholders. Penalizing management for opportunity costs associated with holding cash distributions (-21%).

3) Amount of Funds Raised Since IPO (-): Negative due to perception that management will continue to go to market for funds, increasing the risk of equity dilution. Inability to invest funds at a positive spread (- 21%).

4) Trading Volume to Total Share Outstanding (-): Negative due to trading volume asymmetries. Insiders and large institutional owners are limited by illiquidity in REIT shares, and are buy-and-hold by nature.

5) Projected Funds From Operations Growth (+): Positive due to the direct influence growth in funds form operations has on multiples (20%).

6) Total Implied Market Cap (+): Positive due to larger firms having the economies of scale and scope in access to capital, real estate development/acquisition capabilities, complement firm mergers and acquisitions, operating efficiencies, ancillary revenue streams, etc. (16%).

Moderate Correlation:

1) Development Capabilities (+): Positive due to investor perception that REITs are limited in internal growth capabilities, and will reach a limit in general and administrative cost reduction, leaving new development the primary driver for future FFO growth.

2) Dividend Growth (+): Positive due to consistent, and consistently growing dividends. Retail and institutional investor value REITs on their ability to pay dividends. Retail and institutional investor value REITs on their ability to pay current income yields, and a normal rate of return on capital. Consistency in dividend growth is highly valued.

3) Regional Focus (-): Negative due to the perception that REITs regionally focused are limited in FFO growth potential, are not diversifying their risk across markets

4) Beta(-): Negative due to the perception that as REIT betas approximate the market, they are assuming higher levels of systematic risk. To compensate for higher levels of risk, REITs will have to pay higher expected rates of return on equity. To achieve higher rates of return, REITs will have to take on more debt, or invest in higher yielding, higher risk investments.

[Musicwhiz]

More REITs to make debut on S'pore Exchange
05:55 AM Jan 17, 2011
by Millet Enriquez

SINGAPORE - At least seven real estate investment trusts (REITs) that could raise around $4 billion are expected to make their debut on the Singapore Exchange this year.

Analysts expect further upside for REITs and said more of them will likely ride the momentum and issues as big as last year's two mega-IPOs could be in the pipeline.

One of these is the Mapletree Commercial Trust to be launched sometime in late March or early April, which could raise over $1 billion and will have an asset portfolio of about $2.5 billion, said Mr George Lee, executive vice-president, Group Investment Banking at OCBC Bank.

The other big issue is that of Perennial Real Estate, which is reported to list a trust comprising principally of retail malls in China, and will potentially raise funds close to $1 billion.

The REIT IPO pipeline also includes another syariah-compliant REIT of a Middle East hospitality asset, three hospitality trusts from Singapore and Hong Kong, and an industrial trust.

"The general market is fairly conducive to IPOs this year," said Mr Lee, adding that a bullish equity market - which could hit 3,500 to 3,600 this year - as well as better performance from last year's IPOs could encourage more companies to list on the exchange this year.

Prospect for REITs, in particular, remain positive.

OCBC's Mr Lee said that while the FTSI REIT sub-index has risen 149 per cent from the trough in March 2009, there is still more room for upside given that the index is still 37 per cent off the peak reached in June 2007.

Credit Suisse in its Jan 12 report said it expects positive momentum to continue in the office REIT sector and estimates rents to rise by 3 to 8 per cent in 2011 to 2012.

It added that rents here are still 50 per cent lower than those in Hong Kong - a gap that will widen further - and Singapore remains an attractive venue for businesses to set up and expand.

"Businesses have been and are still in expansion mode, mostly across the financials and related, insurance, oil and gas, services and shipping industries.

"We expect occupancy to bottom in 2011 and recover to 90 per cent in 2014, when we anticipate a potential shortage in prime CBD space, as new supply is only expected to come through in 2015," the Credit Suisse report said.

Analysts said that tax benefits and high visibility to help raise funds are among the reasons why REITs list on the exchange.

"Listed REITs income is tax-free, subjected to certain conditions," said Mr Robson Lee, partner Shook Lin & Bok.

He added that to qualify, REITs must distribute 90 per cent of its income to unit holders and invest portions of its net asset value on rental-yielding properties.

Properties sold to listed REITs are also not subject to stamp duties, he added.

Experts believe REITs will remain attractive to investors, especially at this time because they ware a good hedge against inflation.

"With REITs there's no speculation, it's a serious business of acquiring property with a steady income yield. It's a hybrid of sorts: It's a property and yield play. You don't expect phenomenal upswings or downswings because rentals are locked in three years or more, so this creates a very safe, stable kind of investment," said Shook Lin & Bok's Mr Lee.

"There will be no lack of tenants," he added, and investors can enjoy a steady stream of rental driven by economic recovery and Singapore's attractive business environment.

[d.o.g.]

"With REITs there's no speculation, it's a serious business of acquiring property with a steady income yield. It's a hybrid of sorts: It's a property and yield play. You don't expect phenomenal upswings or downswings because rentals are locked in three years or more, so this creates a very safe, stable kind of investment," said Shook Lin & Bok's Mr Lee.

Ha ha ha. No speculation? Very safe, stable kind of investment?

I wonder where Mr Robson Lee was during the 2007-2009 financial crisis when so many REITs were raising money to fend off the bankers.

"There will be no lack of tenants," he added

I guess he's never seen the Akira or Autron buildings then. Or the top floor of Suntec City mall...

[Contrarian]

[quote='d.o.g.' pid='5127' dateline='1295233214']

"With REITs there's no speculation, it's a serious business of acquiring property with a steady income yield. It's a hybrid of sorts: It's a property and yield play. You don't expect phenomenal upswings or downswings because rentals are locked in three years or more, so this creates a very safe, stable kind of investment," said Shook Lin & Bok's Mr Lee.

His business depends on all these trusts. The more set up, the more biz potential for him to do legal contracts, sit on boards as directors.

Good for his biz may not mean good for investors...

[yeokiwi]

Lawyer mah...

http://www.shooklin.com/bios/c_robson.htm

A woman and her little girl were visiting the grave of the little girl's grandmother.
On their way through the cemetery back to the car, the little girl asked, "Mommy, do they ever bury two people in the same grave?"
"Of course not, dear." replied the mother, "Why would you think that?"
"The tombstone back there said 'Here lies a lawyer and an honest man.'"

[mikh]

Lawyer mah...

http://www.shooklin.com/bios/c_robson.htm

A woman and her little girl were visiting the grave of the little girl's grandmother.
On their way through the cemetery back to the car, the little girl asked, "Mommy, do they ever bury two people in the same grave?"
"Of course not, dear." replied the mother, "Why would you think that?"
"The tombstone back there said 'Here lies a lawyer and an honest man.'"

Haha that was a good one!

The lawyer should not have been given credibility/published commenting on an area beyond his domain of expertise. That's the problem of association and it simply abounds. Reminds me of the auntie lucy TV ad promoting face smoothing cream!

[Musicwhiz]

CNA article. Robson Lee is again asked to comment. REITs are viewed as being "attractive" and a "good hedge against inflation".

Comments are welcome!

REIT IPO galore on SGX this year
By Millet Enriquez | Posted: 27 January 2011 2209 hrs

SINGAPORE : At least seven real-estate investment trusts (REITs) are expected to make their debut on the Singapore Exchange (SGX) this year.

And like last year's big-ticket IPOs of Global Logistic Properties and Mapletree Industrial Trust, analysts said the listings in 2011 could also include some heavyweights.

Experts said the seven upcoming REIT IPOs could together raise around S$4 billion.

REIT IPOs in the pipeline include that of Mapletree's commercial property arm that analysts said could take place in late March or early April.

The IPO could raise more than S$1 billion and will have an asset portfolio of about S$2.5 billion, analysts said.

Perennial Real Estate is also reportedly set to list a REIT consisting of retail malls in China.

According to analysts, the Perennial retail REIT listing will potentially raise close to S$1 billion.

Market watchers said the REIT market in Singapore still has room to grow.

George Lee, executive VP of Group Investment Banking at OCBC Bank said: "If you look at the FTSE sub-index, year-to-date it has risen by 11.6 per cent. Now compare that to the trough reached in March 2009, the index has risen by 149 per cent.

"Our view is that it has not over-shot, because notwithstanding the very strong performance of the REITS sector in the last couple of years, it is still 37 per cent off the peak reached in June of 2007."

A bullish equity market that could see the Straits Times Index (STI) hit 3,500 to 3,600 this year, and strong performance by last year's IPOs could encourage more trusts to list on the exchange in 2011, analysts said.

Tax benefits and ease of fundraising are the reasons why REITs are flocking to the SGX.

The income of listed REITs is tax-free in Singapore because they distribute 90 per cent of it to unit-holders. Properties sold to listed REITs are not subject to stamp duties either, experts said.

Other REIT IPOs this year may include a Shariah-compliant REIT of Middle East hospitality assets, three hospitality trusts from Singapore and Hong Kong, and an industrial trust.

"REITs are attractive investments to investors because they provide relatively stable yield. There's potential upside in stock prices and there is strong steady income for a very certain period - usually 3 to 5 years. So on this basis, they are attractive to investors," said Robson Lee, partner at Shooklin & Bok.

Analysts also expect REITs to be attractive investments this year because they are a good hedge against inflation.

- CNA /ls

[mikh]

"REITs are attractive investments to investors because they provide relatively stable yield. There's potential upside in stock prices and there is strong steady income for a very certain period - usually 3 to 5 years. So on this basis, they are attractive to investors," said Robson Lee, partner at Shooklin & Bok.

Sounds good!? No downside! CNA giving investment analyst job to lawyer again.

George Lee, executive VP of Group Investment Banking at OCBC Bank said: "If you look at the FTSE sub-index, year-to-date it has risen by 11.6 per cent. Now compare that to the trough reached in March 2009, the index has risen by 149 per cent.

"Our view is that it has not over-shot, because notwithstanding the very strong performance of the REITS sector in the last couple of years, it is still 37 per cent off the peak reached in June of 2007."

Alternate view means that some investors who bought in June 2007 are still under-water. 3-5 yrs already.

[Zelphon]

"REITs are attractive investments to investors because they provide relatively stable yield. There's potential upside in stock prices and there is strong steady income for a very certain period - usually 3 to 5 years. So on this basis, they are attractive to investors," said Robson Lee, partner at Shooklin & Bok.

Sounds good!? No downside! CNA giving investment analyst job to lawyer again.

George Lee, executive VP of Group Investment Banking at OCBC Bank said: "If you look at the FTSE sub-index, year-to-date it has risen by 11.6 per cent. Now compare that to the trough reached in March 2009, the index has risen by 149 per cent.

"Our view is that it has not over-shot, because notwithstanding the very strong performance of the REITS sector in the last couple of years, it is still 37 per cent off the peak reached in June of 2007."

Alternate view means that some investors who bought in June 2007 are still under-water. 3-5 yrs already.

Yeah, imagine you bought Saizen REITS during IPO at $1.00 !!!

Now share price only at $0.165...

Everything depends on price entry and exit...