Analysing REITS

[swakoo]

I read the article, which might be interesting to some VB here.

(not vested in any REITS)

15 Singapore REITs that made you money if you invested from their IPO
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So do REITs really offer a steady stream of dividends and overall gains – even if they issue rights time and again?

A simpler and more comprehensive exercise would be to just plot out the ST Reit index since Sreits started in late 2002 - blue line in chart below.
Doesn't include dividends yet.

[Image: big.chart?nosettings=1&symb=FSTAS8670&uf...mocktick=1]

One of the rare occasions where Ms Teh wrongly referred to a myth in 2011, perhaps after seeing that calling it a myth in 2009 would have been correct.

[swakoo]

And for the curious, this is how the 1st 5 reits that IPO'ed in 2002-04 did since IPO:

[Image: big.chart?nosettings=1&symb=C38U&uf=0&ty...mocktick=1]

[opmi]

And for the curious, this is how the 1st 5 reits that IPO'ed in 2002-04 did since IPO:

[Image: big.chart?nosettings=1&symb=C38U&uf=0&ty...mocktick=1]

must see in context of supply of cheap assets acquisitions (with potential AEIs) and low gearing % and cheap equity funding (during 2005-08, dirt cheap). All in the past.

these 3 conditions are not there any more. So not repeatable.

[swakoo]

And for the curious, this is how the 1st 5 reits that IPO'ed in 2002-04 did since IPO:

must see in context of supply of cheap assets acquisitions (with potential AEIs) and low gearing % and cheap equity funding (during 2005-08, dirt cheap). All in the past.

these 3 conditions are not there any more. So not repeatable.

Let's take a look then at a couple of reits that went IPO post 2005-08:

[Image: big.chart?nosettings=1&symb=ME8U&uf=0&ty...mocktick=1]

[opmi]

^^ which REITs are these? Not familiar with ticker code? Thanks.

[Dosser]

I read the article, which might be interesting to some VB here.

(not vested in any REITS)

15 Singapore REITs that made you money if you invested from their IPO

In 2011, Teh Hooi Ling wrote an intriguing article ‘The REIT Myth Busted’ on The Business Times. She pointed out among 17 REITs with a listing history of four years, 14 of them issued a cash call (rights issue). Teh stated that for many of the REITs, their cash calls exceeded the dividends paid to shareholders. In other words, whatever the REITs pay out in dividends, they ‘take it back’ in the form of rights issues.

Calvin Yeo, a REIT investor, responded to Teh’s article with his own ‘Is the REIT Myth Busted?’. He pointed that Teh’s article does not consider that an investor can choose not to subscribe to the rights issue. An investor basically also has the option to sell the nil-paid rights, which are given free, to earn additional income. Of course, by doing that, the investor must be prepared to have his shares diluted.

So do REITs really offer a steady stream of dividends and overall gains – even if they issue rights time and again?
...
http://www.theedgemarkets.com/sg/article...-their-ipo

The calculations assume that the rights issues were not taken up.

Many of the rights issues were in 2009/2010, when REITs were very depressed. Substantial discounts on market price were given on those rights issues. Although this was dilutive at the time (the price dropped after the rights to reflect the additional, discounted units), this was subsequently very profitable. For example, Fortune REIT rights were at HK$2.29 per unit, compared with over $8 now, and over $9 last year. First REIT rights were S$0.50c per unit, compared with S$1.185 now, and over $1.40 last year. Total yield would, however, be affected by the dilution effect on the holding pre-rights.

The really profitable move was applying for unsubscribed rights, which could be done at the same time as subscribing to the rights. There were not a lot of these, but my memory is that one could get 5% to 10% extra units, over the rights allocation. For those extra units there was no dilution effect. Continuing to hold those extra units, the current annualized distribution on Fortune is HK$0.47 per unit, or over 20% annual yield on the issue price, and for First REIT nearly 17%. Compare that with leaving the money on term deposit in the bank.....However, it was important to have the cash available to subscribe both to the rights issue and the unsubscribed rights. It also took a bit of faith in the dark days of 2009 to commit yet more cash to the market.

[shadow_walker]

Agree with OPMI, this was in the past when REITs was a new asset class to people. In the early days, CapitaMall Trust (SingMall Property Trust) had a failed IPO in 2001, before it was listed in 2002 for dividend yield of 7%. First REIT was floated at a dividend yield of ~9%. Dividend yield back then was higher than it is today. Investors enjoy capital gain from yield compression + a higher dividend yield that investors today will not have. In addition, the REITs listed after the GFC period seems to be of lower quality as the tycoons took the opportunity to offload assets to yield seeking investors.

Taking the total investment return of 2310% and divided by 19 REITs and average years of listing of 11 years, it will give us a simple annual return of 12% per REIT per year. 1/3 of it are attributable to capital gain, which is around 4% pa. This will be partly due to organic growth of maybe 1-2% (retail, healthcare and logistics had enjoyed healthy rental reversion) and yield compression for the remainder. The other 8% will be from dividend income, a function of initial dividend yield and organic growth in dividend.

Ultimately, the return of a REIT holder should not deviate too much from the initial dividend yield that he was invested in and organic growth of the mature assets. REITs are ultimately mature leveraged assets generating single digit return on equity and one should not expect spectacular capital gain. Capital gain and loss fluctuates dependent on the market cycle.

There are certainly rooms for deviation when it comes to the capital allocation decisions of management. In the long term, the capital allocation ability of a management is far more important in REITs than the operational ability. LMIR and Link REIT are good case studies of how different management can have a disparate impact on shareholders' return.

[CY09]

Kind of agree. Post 2011, many REITS have been IPO with ppty valuation at very low cap rates and dividend yields. It was during this time where we notice many owners using the REIT vehicle to offload their assets to retail investors. If i were to venture a bet, if we were to do this analysis again in 2020, weighing against REITS who have IPO 2014 and before, we will notice 2 trends.

1) REITS who had IPO between 2010-2014 underperform against those in 2002-2004
2) Inclusive of div and rights, strong name IPOS (mapletree, ascendas, capitaland, frasers) were the main out performers, while other groups floundered

[swakoo]

^^ which REITs are these? Not familiar with ticker code? Thanks.

The blue line is Mapletree Industrial Trust.
The red line is Mapletree Commercial Trust.

Do note that I have only posted up the charts of these 5 "grandfather" reits from their IPO dates. I have NOT posted any comments (positive, neutral or negative) on any one or all of them, over any specific range of time. Or comments extrapolating their performance (or lack of) to other reits that IPO later. These charts are for reference and possibly for forumers to comment on (and it will be interesting to hear their views). 

I have also only responded to your comments by posting up the charts of another 2 reits from their IPO dates, the shape of which appear somewhat similar to that of the 5 pioneer reits. I have assumed that you suggest that such shapes are not repeatable post 2005-08, but this could be a wrong assumption, of course.

[opmi]

^^ yes. Just for discussion and learning only.