Analysing REITS

[NTL]

Add a little opinion of mine.

From the chart, seems like SG Bonds are oversold. So likely it will correct upwards (decreasing yield) . This will mean that REITs prices will go up too.

If looking at another point, US Bond will go down further to raise the yield, with SG Bonds remain steady. So price of REITs will stay put.

Either way, look like it is good time to buy some REITs?

[CY09]

Just curious would a rising 10 yr SG bond yield affect the Cap rate valuation that our local REITS used to value their assets? If so, could anyone elaborate?

[Stocker]

Add a little opinion of mine.

From the chart, seems like SG Bonds are oversold. So likely it will correct upwards (decreasing yield) . This will mean that REITs prices will go up too.

If looking at another point, US Bond will go down further to raise the yield, with SG Bonds remain steady. So price of REITs will stay put.

Either way, look like it is good time to buy some REITs?

Agree.

[NTL]

Just curious would a rising 10 yr SG bond yield affect the Cap rate valuation that our local REITS used to value their assets? If so, could anyone elaborate?

I had gave some thoughts abt this recently.

What I think is Cap Rate likely will likely be raised with raising interest. So in order to maintain the same asset value, the rental must increase. If the rental cannot increase, then the asset value will likely to fall.

[cfa]

rateSGX-ST Announcement
DRAWDOWN ON JPY7 BILLION AND S$600 MILLION
UNSECURED LOAN FACILITIES
Further to the announcement by YTL Starhill Global REIT Management Limited as manager of Starhill
Global Real Estate Investment Trust (“Starhill Global REIT”, and the manager of Starhill Global REIT,
the “Manager”) on 25 April 2013, the Manager is pleased to announce that HSBC Institutional Trust
Services (Singapore) Limited (in its capacity as trustee of Starhill Global REIT) (the “Starhill Global
REIT Trustee”) has drawn down on the three-year S$100 million and JPY7 billion term loan facilities in
full, and approximately S$322 million from the five-year loan facilities (collectively, the “New Loans”)
granted to it pursuant to an unsecured loan facility agreement dated 25 April 2013 (“Facility
Agreement”) mainly to refinance its maturing debts comprising a S$284 million secured term loan,
JPY12.5 billion secured term loans and S$62 million unsecured revolving credit facilities (the
“Refinancing”).
The New Loans are expected to have an all-in interest cost of approximately 2.4%1 per annum,
assuming current benchmark rates. The New Loans have been substantially hedged, resulting in
approximately 94% of the borrowings of Starhill Global REIT and its subsidiaries being fixed or hedged
via interest rate swaps and caps post Refinancing.
Following the Refinancing, Starhill Global REIT would have no refinancing requirement for its existing
debt portfolio until June 2015 and the existing securities on Starhill Global REIT Trustee’s interest on
Ngee Ann City have been discharged, thereby increasing the unencumbered assets ratio from 42% to
79%.
YTL Starhill Global REIT Management Limited
(Company registration no. 200502123C)
(as manager of Starhill Global Real Estate Investment Trust)
Lam Chee Kin
Joint Company Secretary
17 September 2013
1 Including

Starhill Global just got their debt refinanced at a rate lower than their weighted average interest rate per annum at 3.16% ( AR of 2012 ), so interest rate higher than before ? Not necessary !

[tanjm]

Just curious would a rising 10 yr SG bond yield affect the Cap rate valuation that our local REITS used to value their assets? If so, could anyone elaborate?

I had gave some thoughts abt this recently.

What I think is Cap Rate likely will likely be raised with raising interest. So in order to maintain the same asset value, the rental must increase. If the rental cannot increase, then the asset value will likely to fall.

If cap rate is not to be too arbitrary, a more likely method of deriving a cap rate would be to take actual transacted prices of equivalent actual property sales and reverse engineer (in financial engineering parlance - to imply) the cap rate that would explain the sale price.

In such a case cap rate would only be indirectly linked to rising interest rates in the sense that rising interest rates would make it more expensive to fund a property purchase.

This makes sense since you'd want to value a building based on actual transactions.

[CY09]

The sales comparable and cap rate valuation are tied strongly to the current market sentiments to determine the price of the asset. It has little inkling to the actual value of the assets .

In addition, both valuation methods will result in a wild fluctuation of a REIT's debt to Asset (DTA) ratio. Which leads me to wonder will this mean higher interest expenses for REITS if their DTA ratio hits beyond a certain %. This is because their asset value can fall drastically when a global I/r increases resulting in rise of DTA ratio. REITS will be hit by higher finance expense (and that is on top of rising global interest rates) because their assets' valuation fell and not due to any fault of the management.

[KopiKat]

rateSGX-ST Announcement
DRAWDOWN ON JPY7 BILLION AND S$600 MILLION
UNSECURED LOAN FACILITIES
Further to the announcement by YTL Starhill Global REIT Management Limited as manager of Starhill
Global Real Estate Investment Trust (“Starhill Global REIT”, and the manager of Starhill Global REIT,
the “Manager”) on 25 April 2013, the Manager is pleased to announce that HSBC Institutional Trust
Services (Singapore) Limited (in its capacity as trustee of Starhill Global REIT) (the “Starhill Global
REIT Trustee”) has drawn down on the three-year S$100 million and JPY7 billion term loan facilities in
full, and approximately S$322 million from the five-year loan facilities (collectively, the “New Loans”)
granted to it pursuant to an unsecured loan facility agreement dated 25 April 2013 (“Facility
Agreement”) mainly to refinance its maturing debts comprising a S$284 million secured term loan,
JPY12.5 billion secured term loans and S$62 million unsecured revolving credit facilities (the
“Refinancing”).
The New Loans are expected to have an all-in interest cost of approximately 2.4%1 per annum,
assuming current benchmark rates. The New Loans have been substantially hedged, resulting in
approximately 94% of the borrowings of Starhill Global REIT and its subsidiaries being fixed or hedged
via interest rate swaps and caps post Refinancing.
Following the Refinancing, Starhill Global REIT would have no refinancing requirement for its existing
debt portfolio until June 2015 and the existing securities on Starhill Global REIT Trustee’s interest on
Ngee Ann City have been discharged, thereby increasing the unencumbered assets ratio from 42% to
79%.
YTL Starhill Global REIT Management Limited
(Company registration no. 200502123C)
(as manager of Starhill Global Real Estate Investment Trust)
Lam Chee Kin
Joint Company Secretary
17 September 2013
1 Including

Starhill Global just got their debt refinanced at a rate lower than their weighted average interest rate per annum at 3.16% ( AR of 2012 ), so interest rate higher than before ? Not necessary !

From AR2012 (pg97), the interest rate for the maturing debts,

JPY term loan facility (13Bil JPY) = 0.78% – 0.89%
SGD term loan facility (284Mil S$) = 1.60% – 1.79%
SGD revolving credit facility (65Mil S$) = 1.38% – 1.70%

Assuming these 3 are the ones being refinanced, it looks like the refinancing may have been done at a higher average cost.

[cfa]

Hi KopiKat,

I Thought it should be base on weighted average interest rate per annum , not Nominal interest rate ? May be I was incorrect . Hope you can recheck and advise, thanks.

(Vested)

[KopiKat]

Hi KopiKat,

I Thought it should be base on weighted average interest rate per annum , not Nominal interest rate ? May be I was incorrect . Hope you can recheck and advise, thanks.

(Vested)

I believe the 3.16% figure given in AR2012 would have also included the higher interest rate loans for A$ (5.52% to 6.88%) & RM (5.35%). The current refinancing is meant for the JPY and some of the SGD borrowings which were at lower interest rates.

So, I don't think we can draw any conclusion by comparing using the 2.4% (refinancing of JPY & some SGD) vs 3.61% (AR2012 - Weighted Average).

Further, these new loans are 'unsecured' and is it possible that the interest rate would be lower than the previous ones which were 'secured' against their Ngee Ann City property?