REITs - Long term or Short term?

[archonmage]

Hi,

Until recently, I happen to know that those managers who manage the REITs were paid dividends in the form of issue and allocating more shares to them. So, in the future dividend payout, isn't that they will be getting more and more share units subsequently?

In this case, doesn't that will dilute the existing shareholder share value?

More Shares Issue --> Price drop in share

I have been holding to FIRST REITs at 74 cents for more that 1 year and the price seems to going down.

I hope any REITs expert here can answer to my queries.

Thanks and Regards,
archonmage

[jfc18]

If you give cash to the managers, there will be less money to be distributed as dividends. Not much effect.

However, if you give shares to them, the good thing is tat they now have a vested interest in the reits, thus it aligns the objective of shareholders and manager, which is to "make more money" and add value to the reit.

[Hulumas]

If you give cash to the managers, there will be less money to be distributed as dividends. Not much effect.

However, if you give shares to them, the good thing is tat they now have a vested interest in the reits, thus it aligns the objective of shareholders and manager, which is to "make more money" and add value to the reit.

An upbeat promotion.

[clonewolf]

jfc. giving them shares doesnt equate to them not selling the shares isnt it. dont think they have rules to stop them from selling it and convert the shares to cash within a span of months... in that case, it is indeed true the dilute and mess selling of reits shares can indeed bring down the price of the shares. then only a upbeat and happy irrational market can bring the price up like starting last july.

but look at it, not just the reits has fallen, look at babcock, miif, ascendas india, all sucks too now. so the best way to go about this if i own the reits, is to average down.

vested in cambridge and allco too. per average down will cost me 50lot at least, but since jfc hightlighted the possibility of f&n rising capital thru issuing of new allco reits shares, i didnt take any action when it drop to .71 lately. hope to top up soon...

[DPSK]

its entirely up to them to sell the units after they receive them. but at least you get to know if they do sell

anyway the number of new units is immaterial to the bigger amount of units in circulation. so it wont cause too much dilution to the share price

[clonewolf]

if i recall, the last time cambridge issue the new shares to pay for their mgr, price drop within 1 week.

one thing about reits and trust, after xd, there is some 'forces' that support the price for sometime. i saw this in fsl, rickmer, and some of the reits i cant recall now.

rickmer is starting to move up based on chart, think they r declaring dividend soon...

[ghchua]

REITs are definitely for long term due to its consistent cash flow via income from rentals. Do not be too focused on short term market price.

[chantc]

consistent cash flow, and sustainable cash flow is something to take note for dividend plays.

[clonewolf]

for long term may indirectly work out either way, if +ve in future, merrier, i m wondering if it will drop 90% of its listed price. and if that happens, wouldnt that be bad? i have an 50+ associate will dump 400k into rickmer fyi which i also dared not.

i would be really interested to hear from more opinion here.

[chantc]

If the market is rational, then the counter should not drop below its book value because thats how much the counter is worth if sold.

However, we all know how rational the market is. So in the end, its still buyers beware, and do your homework. A perfectly good, well-run company can still be battered down by unknown reasons, and stay down.

[ghchua]

i have an 50+ associate will dump 400k into rickmer fyi which i also dared not.

Did he/she diversify his/her stock holdings? It is a big risk to invest so much into one counter, unless his/her portfolio is in the size of a few hundred millions.

[jfc18]

If you give cash to the managers, there will be less money to be distributed as dividends. Not much effect.

However, if you give shares to them, the good thing is tat they now have a vested interest in the reits, thus it aligns the objective of shareholders and manager, which is to "make more money" and add value to the reit.

An upbeat promotion.

This is the same as companies giving shares options to the their employees so tat the employees will have a vested interest and would want the company to do well. This is a fact, not a manipulating shameless "upbeat promotion" which only a certain someone is capable of. Does tat ring a bell to you, Hulumas??

[chantc]

So far, I've not found any REIT manager in SGX that does not sell their shares after being issued. Like it or not, the staff needs to eat and be paid.

The issuance of shares are not for the managers to have a vested interest, but its instead used to promote liquidity of the REIT shares in the general market. The managers could also choose to sell-up if they can afford to wait for a while before they need to pay their staff. This is a pattern I've seen last year.

So far, I only see the non-reits managers (e.g. MIIF, babcock) that really keep their stake in the trust after issuance of the shares.

But again, I do not keep track of every single REIT. I might have missed something out.

[woonlm492]

In this current environment, the best thing is to have counters that will most likely pay sustainable dividends, and to hold-on till this thing blows over.

Then we can start to think about price appreciation.

And yes, of course, to continue topping-up where we think it's possible. Our judgement is important now.

[FD2]

I am thinking of investing in REITs to diversify my portfolio. Looking into Cambridge now..any advise from the experts here ?

[limster]

agree for the long run, short-term price movements a bit strange.

FCT declare $0.01 more dividend compared to last quarter, market think its so fantastic, shares shoot up intraday by 6%+ before settling for 4%+ gain.

in other words it seems that expectations for reits are so low.....

[chantc]

With regards to cambridge, i suggest to sit tight because cambridge is trying to be the first syariah compliant in Asia. However, whether the properties within its portfolio is syariah compliant remains to be seen. It is possible that cambridge might have to offload some properties to be compliant.

[chantc]

REITs were unfairly beaten downwards by people who do not understand what REITs are all about. However, I see the rebound as short-lived, unless there are some news that retail investors do not know about.

[Hulumas]

REITs were unfairly beaten downwards by people who do not understand what REITs are all about. However, I see the rebound as short-lived, unless there are some news that retail investors do not know about.

Dear Chantc,

Yes, I agree with the above points.

[makoshark]

With regards to cambridge, i suggest to sit tight because cambridge is trying to be the first syariah compliant in Asia. However, whether the properties within its portfolio is syariah compliant remains to be seen. It is possible that cambridge might have to offload some properties to be compliant.

Is this fact or opinion?

[Hulumas]

With regards to cambridge, i suggest to sit tight because cambridge is trying to be the first syariah compliant in Asia. However, whether the properties within its portfolio is syariah compliant remains to be seen. It is possible that cambridge might have to offload some properties to be compliant.

Is this fact or opinion?

Dear Makoshark,

Both, fact and opinion I suppose.

[chantc]

With regards to cambridge, i suggest to sit tight because cambridge is trying to be the first syariah compliant in Asia. However, whether the properties within its portfolio is syariah compliant remains to be seen. It is possible that cambridge might have to offload some properties to be compliant.

Is this fact or opinion?

Of course its an opinion. I put its possible. I have no idea what are the properties that cambridge has. However, I do know that being syariah compliant is not easy. If any property can be syariah compliant, then why no REITs have declared themselves so far?

[clonewolf]

sometimes trying to be the first and innovative one can be a first mover advantage. but if sit on the idea too long, then will be come stale and things will square one again. so why worry?

[limster]

In June 2005 Dow Jones Indexes, New York, and RHB Securities, Kuala Lumpur, teamed up to launch a new "Islamic Malaysia Index" —a collection of 45 stocks representing Malaysian companies that comply with a variety of Sharia-based criteria. Three variables (the total debt of an indexed company, its total cash plus interest-bearing securities and its accounts receivables) must each be less than 33% of the trailing 12-month average capitalization, for example.
- Wikipedia (no guarantees of accuracy)


Assuming less than 33% gearing is a key criteria, then Cambridge is at/over the limit? If it wants to raise further capital, it must keep on diluting its shareholder base through repeated preference share issues? Doesn't seem attractive to me if that's the case.

[meatball]

Singapore REITs have suffered the brunt of the stock market correction.
Our index of 14 REITs corrected 16.9% in 1H08 and 27.2% in 3Q08 and
underperformed FSSTI, which corrected 14.9% in 1H08 and 19.9% in 3Q08. The
sector was affected by tightening credit markets and a steepening yield
curve, which have resulted in higher costs of borrowings. Indiscriminate
selling of REITs linked to embattled Macquarie Group and American
International Group has also brought valuations to depressed levels.

Yield spread at historic high. Singapore REITs provide a distribution
yield of 8.8%, which is almost two standard deviations above the mean of
6.0%. Yield spread between Singapore REITs and 10-year government bond has
reached a historic high of 5.5%. On a weighted average basis, Singapore
REITs are trading at a steep 39% discount to NAV. Market pessimism
presents an exceptional value proposition.

Threat from inflation has eased. The fear of runaway inflation has
subsided with the correction in the prices of crude oil and other
commodities. Yield for 10-year government bond therefore corrected from a
high of 3.9% in Jun 08 to 2.9% in mid-Sep 08. Although bond yield has
rebounded to 3.2% recently, the upward momentum is not sustainable as
further increases in commodity prices are expected to be mild.

REITs provide stable, visible and recurrent income. In addition, catalysts
for recovery include the following: a) normalisation in credit markets as
systemic risks subside over time, and b) eventual reflation in Asian
economies due to fiscal stimuli and growth in domestic consumption.
Ascendas REIT and Frasers Centrepoint Trust are well positioned to weather
the credit crisis due to their A-rated credit standing and support from
government-linked sponsors Ascendas and Fraser & Neave. Suntec REIT has
refinanced its short-term borrowings and does not have a significant need
for refinancing till Dec 09.
[color=#] [/color]
We have upgraded Singapore REITs from MARKET WEIGHT to OVERWEIGHT due to
the overwhelmingly attractive yield spread. Our top picks are Ascendas
REIT, CapitaCommercial Trust, Frasers Centrepoint Trust and Suntec REIT.

Retail REITs: Resilient and defensive. Retail REITs benefit from healthy
job creation and population growth in Singapore. We like suburban malls
that cater to non-discretionary consumer spending by the population base in
the HDB heartland and are conveniently located next to MRT stations. They
provide defensive shelter from the increase in supply at Orchard Road and
stability in occupancy. BUY Frasers Centrepoint Trust for its focus on
suburban malls and ready pipeline of acquisitions. BUY Suntec REIT for
improved connectivity to Suntec City when the new Circle Line is ready in
2010 and positive rental reversion for Suntec Office Towers.

Industrial REITs: Bucking the trend. Industrial REITs provide defensive
strength with a weighted average lease term to expiry of 5.5 years for
Ascendas REIT and 6.4 years for Cambridge Industrial Trust. They are
protected by security deposits for long-term leases amounting to 10.4
months for Ascendas REIT and 17.0 months for Cambridge Industrial Trust.
Industrial REITs also benefit from positive rental reversion as many
companies are relocating non client-facing backroom, data centre and other
support functions to suburban locations. BUY Ascendas REIT as business &
science parks and hi-tech industrial buildings account for 52% of its
portfolio.

Office REITs: Correction underway. Office rentals peaked in 2Q08 as the
volume of leasing transactions driven by expansion fell. Negative dynamics
will prevail with impending supply coming on stream starting 2010, which is
substantially concentrated within the CBD. This is exacerbated by the
government's intention to decentralise commercial activities and additional
supply coming from transitional office sites. However, our stress test
indicates that current share prices for office REITs have imputed a drastic
70% collapse in rentals to below S$5psf pm for Grade A office space in
Raffles Place. While we agree that the outlook for office REITs is
lacklustre, we find CapitaCommercial Trust oversold.