Analysing REITS

[NTL]

i posted this on Cache REIT forum but got no replied...

just wondering, why the property price of all industrial REITs seem to be very cheap vis a vis the current market price?

for ex, the average value of warehouse space in industrial REITs is about SGD100-200 per sqft, whereas the current median market price stands at SGD400-500 per sqft (according to Colliers and Savills) and even >SGD 800 per sqft (according to URA)

thanks..

A few possible reasons for the lower value:

1. The way the valuation is made.
2. Is it a whole building sales, or individual units sales
3. Age of building.
4. Building structure/usage.

There will be others, but I am not an expert.

At most times, when I see a REIT sell off their buildings, they usually book a gain from the book value, thus good chance they are "under-valued".

[NTL]

Need a little help here, hope somebody can enlighten me please! Thank you!

If a REITS have more than 100% payout ratio, does that mean that they are giving out dividends in excess such that they have to use their Free Cash which therefore being detrimental to the company (Cos they not earning any money) ?

Payout ratio = Dividends / Net Income

Take for example, I extracted out FCT latest report. Isn't FCT paying dividend in excess of what their net income is?

FY2013 Dividend Payout Ratio = 111%

FY2012 Dividend Payout Ratio = 111%

Correct me if I am wrong. So, how do they actually cope with it?

The answer is actually in your table.

Net Income is the income from the Reit portfolio itself. They add back the the non-taxable adjustments and the dividend they received from their investment in other trusts. And they pay 100% of what they get.

[zerobeta]

i posted this on Cache REIT forum but got no replied...

just wondering, why the property price of all industrial REITs seem to be very cheap vis a vis the current market price?

for ex, the average value of warehouse space in industrial REITs is about SGD100-200 per sqft, whereas the current median market price stands at SGD400-500 per sqft (according to Colliers and Savills) and even >SGD 800 per sqft (according to URA)

thanks..

A few possible reasons for the lower value:

1. The way the valuation is made.
2. Is it a whole building sales, or individual units sales
3. Age of building.
4. Building structure/usage.

There will be others, but I am not an expert.

At most times, when I see a REIT sell off their buildings, they usually book a gain from the book value, thus good chance they are "under-valued".

1) definitely it has something to do with the way the surveyors valued the properties... but what are they?
2) the whole building i believe... it's simply the value of their properties (provided in the annual report, given by the surveyors) divided by the total GFA
3) age matters of course but dont think it's the reason because the valuation disparity is so huge and also Cache warehouses are pretty young actually (5-6 years old)
4) yes but they are still within warehouse category... and the disparity among warehouse family shouldn't be that huge as well

[gutman]

Some articles of Reits on business times.

http://www.businesstimes.com.sg/reits

[Dividend Warrior]

Some articles of Reits on business times.

http://www.businesstimes.com.sg/reits

Thanks for sharing.

[wahkao]

All i know is i don't want to hold any REITS if bank interest rate is > than 3%. if it's > 5% than i may start looking at which REITS to buy. (If my guts are still intact).

Hmmm, reits at 5%.
So are u counting on interest rate to go down?

[Freenasi]

Reits theme is the past. The interest rise will affect their payout. Plus, gov the properties curb in place. Its a good move to prevent a bubble.

[gutman]

DMG thinks it is time to look at S-Reits.

__________________________________________________________
S-REITS -Time To Accumulate S-REITs (DMG)
Thursday, December 26, 2013

Since late May 2013 when fears of global interest rate tightening spooked capital markets worldwide, the S-REITs sector has collapsed by over 20%, underperforming the wider FSSTI index (down by 10%). We think the selldown has overly discounted both the macro and REITspecific fundamentals, hence we believe it is an opportune time to buy ahead of consensus upgrades. Maintain BUYs on Keppel-REIT, AIMS AMP, Cambridge and Cache Logistics.

The SREITs under our coverage are currently trading at 6.5% FY14F DPU yields, with almost 3.5% spread over Singapore’s 10-year bond yield (historical average 4.6%). This is on the back of a 20% correction in the SREITs since May, against the wider FSSTI index which retraced by only 10%.


Our fixed income team forecasts only a 66bps rise in US’ 10-year bond yield over the next 12 months, which is expected to push up Singapore rates, with +17bps for 2-year government bond yield and +55bps for 10-year yield by end-2014F. We estimate 3-5% earnings impact on the S-REITs, assuming a 100bps rise in financing costs, which will more than fully account for the rate hikes projected by our fixed income team.

Current valuations suggest that the commercial office and industrial sectors are the most attractive in our view, given the low forward supply stock vis-à-vis the mid-cycle demand, which will continue to underpin a positive upcycle rental reversion. New office supply is expected outpace historical average demand, with new industrial supply through 2016F having reached 71% pre-commitment.

We remain lacklustre on the hospitality REITs with new supply coming onstream (5.9% CAGR until 2015F) and the recent foreign worker riots, which could arrest visitor arrivals (historical growth of 6.7%). However, its low valuations offer limited downside risks at this juncture. In the absence of strong tourism arrivals, suburban malls are expected to outperform prime retail malls, as Singapore’s retail space per capita is still among the lowest in developed Asia-Pacific.


Source: DMG-Research,

[kayhian]

looks like the sellers are out of ammo

[Temperament]

Are Reits correlated to GOV's Bonds when interest rates rise?
If so, how much?

Extract:-

"For example, let's assume the investment-grade "long bonds" (with maturities up to 30 years) yield 4% and the average REIT stocks yield 4% as well. If he "long bonds drops in price in response to rising interest rates and inflationary pressures, driving the yield to 6%, the average REIT's price may also drop, causing it's yield to rise so that it remains competitive with bonds. That's pure logic. However it's interesting to note that, historically at least, REIT's prices haven't correlated very well with bond's prices. According to the National Association of Real Estate Investment Trusts (NAREIT), Reit stocks' correlation with a domestic high yield corporate bond index for the period December 2000 through December 2010 was a modest 0.63, and the correlation with a Merrill Lynch corporate/ government bond index was a very, very low 0.10. These historically modest correlations could have been due to the fact that rising interest rates often occur when the US economy strengthens-which can improve space markets and benefit the REITS as property owners.

NB:-
Anyone like to elaborate on the Singapore Reit's context? What really going to happen on the correlation of REITS and BONDS, when interest rates rise. Are they going to be the same as US market?
Another words when interest rate rises Reit stocks' prices may not fall due local economy strengthens like in the US?