Singapore REITS Investment

Which REIT managers are creating the most value for investors?

2017-01-21T16:56:00.000+08:00

The external manager model adopted by most locally listed trusts is not common in more developed markets such as the US and Australia, and the managers of some successful REITs here have been able to make fortunes for themselves.

However, valuations that managers garner in a transaction, to the extent that they are known, vary widely.

Saizen REIT’s manager, for example, is being sold at a seemingly low price because it is not actually managing any assets.

On the other hand, while Croesus Retail Trust (CRT) has been reporting stable distributions per unit since its listing in 2013, its units traded at relatively high yields because local investors were not familiar with its retail malls in Japan.

The managers that never get transacted are those that run the biggest and most successful REITs in the market, such as CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT).

These managers also seem to charge relatively low fees.

For instance, CCT paid asset and property management fees totalling only $21.7 million last year, equivalent to just 0.25% of its assets under management of $8.5 billion.

By comparison, Cambridge Industrial Trust — with an asset size of $1.4 billion — paid asset and property management fees of $9.17 million for the July-to-September quarter alone.

REIT investors should perhaps ask themselves which managers are creating value for them, and which are not.

Singapore Office Rents to Rebound End-2017

2016-12-25T22:24:00.000+08:00

Singapore’s office rents will remain “a little soft” in 2017 and may pick up only at the end of the year when the amount of new supply of space shrinks, according to CapitaLand Commercial Trust, one of the city-state’s biggest landlords.

About 2.3 million square feet of space were added this year, driving rents down by 15 percent, said Lynette Leong, chief executive office of the real estate trust’s manager. Less than 500,000 square feet are being planned annually starting in 2018, with no supply in sight from 2020, she said in an interview with Bloomberg Television on Tuesday.

“Given that there’s still some new supply coming on stream next year, we foresee that rents will remain a little soft,” Leong said. “However, it should recover by the end of the year given that there’s very little new supply over the years ahead.”

Office rents in the city’s central area fell for the past six quarters, according to data from the Urban Redevelopment Authority, matching the longest stretch of declines since the global financial crisis as banks reduce their workforce.

The period of lower supply from 2018-2019 will help the office market recover, Derrick Heng, an analyst at Maybank Kim Eng, said by phone. "Our call is that there will be a bottom between late 2017 and early 2018 and rents will recover beyond that."

Shares Gain

CapitaLand Commercial shares have gained 11 percent this year, compared with the 2.7 percent increase on the city-state’s real estate investment trust index tracking 32 stocks. The REIT that’s partly owned by CapitaLand Ltd., Southeast Asia’s biggest developer, owns buildings such as Capital Tower and CapitaGreen in the city’s financial district.

“Singapore is not just reliant on the financial services and banks,” Leong said. ‘There are other sectors that have become more active, some examples are technology companies -- we’ve got the Facebooks and Amazons of this world.”

The trust is planning to redevelop a parking structure called Golden Shoe Car Park in the financial district into an office building, where it will add 1 million square feet of space in 2021. “We believe that will be the next wave of the office-market cycle,” she said.

https://www.bloomberg.com/news/articles/2016-11-29/singapore-office-rents-to-rebound-end-2017-capitaland-reit-says

Singapore REITs Turn From Worst to First ?

2016-10-20T09:31:00.000+08:00

Except for REITS sector, not many bright spots now in Singapore stock market.

Offshore and Marine sector is still struggling through the tunnel. No light yet. As a result, banking sector is affected by bad loans and also sluggish economy growth. Telcos are facing potential competition. SPH posted double digit percentage income decline, so is SGX. ...

However, with interest rate rising, challenging demand/supply dynamic, volatile exchange rates, sluggish world economy, will S-REITS ride the storm unharmed? For the whole sector, maybe. But be careful of some particular counters. Right now it is time to either flight to quality, or hold cash.

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(Bloomberg) -- Singapore real estate investment trusts have gone from last year’s biggest losers to this year’s best performers as their world-beating yields attract investors including BNP Paribas Investment Partners to Samsung Asset Management.

Singapore REITs, which mostly invest in malls, offices and industrial buildings, offer the highest dividend yields among developed markets, according to data compiled by Bloomberg. That’s propelled a 8.9 percent increase in the FTSE Straits Times Real Estate Investment Trust index this year as yield-hungry investors flock to the offerings amid record-low interest rates.

“We’re overweight on Singapore REITs,” said Jan Willem Vis, Amsterdam-based senior portfolio manager at BNP Paribas. “They’re attractively valued compared to other markets. REITs are a very good alternative to bonds and they pay sustainable dividends.”

International investors including BNP, Bank of New York Mellon Corp. and Samsung Asset have accelerated purchases of Singapore REITs since June, amid growing expectations central banks will keep interest rates lower for longer. Fund managers have bought 217.84 million units in the five biggest Singapore-listed REITs, the data showed.

The 7 percent yield offered by Singapore REITs, exceeds 6 percent for those listed in Australia and the U.S. and Japan’s 4 percent, according to data compiled by Bloomberg. The buying has helped the FTSE Straits Times Real Estate Investment Trust index erase most of 11 percent slump last year, when it was the worst performer among REITs listed in Australia, the U.S., Japan and Europe. This year, the Singapore REIT index has beaten all those peers.

Rent Increases

“We like industrial REITs as we’re still seeing upward rental reversions for industrial and business parks,” said Alan Richardson, a Hong Kong-based fund manager at Samsung Asset, which manages about $169 billion globally. “I don’t see much downside risks for Singapore REITs even if interest rates start going up.”

Owners of industrial buildings and business parks are benefiting from demand for office space from bio-medical and social media companies, said Richardson. Samsung, BNY Mellon and Schroders Plc were among the buyers of Ascendas Real Estate Investment Trust since June, according to data compiled by Bloomberg.

Singapore Landlords Could Teach Bankers a Thing or Two: Gadfly

Ascendas REIT has climbed 7 percent this year, while Mapletree Industrial is up 13 percent.

The city-state’s REITs have also beaten the benchmark Straits Times Index, which has declined 1.8 percent this year. Singapore 10-year government bonds yielded 1.87 percent as of Oct. 18.

Five-year bond yields are below zero in Japan and parts of Europe, including Switzerland and Italy, as central banks turn to negative rates to bolster sluggish economies.

Tenant Demand

Singapore REITs are being supported by tenant demand. Rents in business parks will hold up as additional supply is mostly already leased, while hospitality REITs will benefit from a rise in tourist arrivals. Office rents are expected to recover next year after a 10 percent to 15 percent decline this year, said Vikrant Pandey, an analyst at UOB Kay Hian Pte.

“Singapore REITs are attractive given their high yields in a low interest rate environment,” said Kar Tzen Chow, a Kuala Lumpur-based fund manager at Affin Hwang Asset Management Bhd., which oversees about $7.6 billion. “Some are able to sustain and even distribute higher dividends given their ability to increase rents.”

Affin Hwang, which is overweight Singapore REITs, recently added shares of Mapletree Greater China Commercial Trust, which owns office and retail properties in mainland China and Hong Kong, Chow said. It also holds Frasers Logistics, Mapletree Logistics and Croesus Retail Trust, whose shares have all gained at least 4 percent this year.

“Dividends can be sustained and grown by a combination of asset enhancements, tenant mix adjustments and making earnings-accretive acquisitions,” Jason Pidcock, a London-based fund manager at Jupiter Asset Management, said by email. Jupiter Asset was the second-largest buyer of Ascendas REIT shares during the quarter, according to data compiled by Bloomberg.

Not every one is bullish on Singapore’s REITs. Daiwa Capital Markets analyst David Lum downgraded the sector to ‘neutral’ from ‘positive’ in August, saying a run up in prices had returned them to fair value. Daiwa’s main concern was the unit prices of some large-cap REITs might not be sustainable if underlying fundamentals continued to deteriorate or if bond yields rose again, Lum said in an August note.

“The chase for yield drives people into equities,” said Hans Goetti, Dubai-based chief strategist for the Middle East and Asia at Banque Internationale a Luxembourg, which manages $40 billion. “Singapore REITs offer among the highest yields. The theme remains valid as central banks remain accommodative.”

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net, Pooja Thakur in Singapore at pthakur@bloomberg.net. To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Peter Vercoe

https://sg.finance.yahoo.com/news/singapore-reits-turn-worst-first-210000505.html

SPH REIT -- one of the boring REITs. But income-oriented investment is not about excitement.

2016-10-11T09:33:00.004+08:00

SPH REIT certainly qualifies as the staple in all income portfolios. Despite the headwinds in local retail leasing sector, SPH REITs, with its good properties, shall deliver stable performance. The impact of online shopping trend and tourist number dropping is overblown.

Mid-term wise, addition of new assets could be price catalyst. Low leverage, two retail properties, full occupancy, high percentage of sponsor' shareholding, making it one of the boring REITs. But income-oriented investment is not about excitement.

Current yield is 5.5%, making it one of the S-REITS with lowest yield, on a par with CMT. I would wait for better opportunities to add some more.

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4Q gross revenue grew 2.2% to $52.2m.

SPH REIT’s 4Q16 performance was underpinned by higher revenue and better operating margins, said CIMB.

Its gross revenue rose 2.7% yoy to S$52.2m (US$38.4m), while income distributed rose 2.1% yoy to S$35.9m (US$26.4m) on improved operating performance and higher margins, thanks to cost savings.

According to CIMB, portfolio occupancy remained full and there was a positive rental reversion of 5.4% over preceeding levels across the portfolio, of which Paragon achieved 5.2% higher rentals on 34.2% of the space renewed in FY16.

The Clementi Mall renewed 11.9% of its space with a 7.8% improvement in rents over preceding levels. CIMB believes that this bodes well for the 46.7% and 59.5% of the NLA that are due to be re-contracted in FY17-18 at Paragon and Clementi Mall, respectively.

Occupancy costs, meanwhile, rose marginally.

Tenant sales at Paragon inched up by 0.3% yoy in FY16 despite a 2.5% yoy dip in shopper footfall, while The Clementi Mall saw a 1.4% yoy retreat in tenant sales with shopper traffic slowing by 2.4% yoy.

According to CIMB, spending per shopper headcount remained relatively steady yoy, demonstrating the resilience of these two properties. As a result, occupancy costs for Paragon and Clementi Mall inched up to 19.6% and 14.8% yoy, respectively.

Looking ahead, CIMB believes ongoing asset enhancement initiatives, such as decanting and conversion of 7000sf of back-of-house space at Paragon, and creating a more efficient layout at Clementi Mall, while also increasing the number of food kiosks there, should lift revenue marginally over the next two years.

It added that with a low gearing of 25.7%, the trust is well placed, to explore inorganic growth

opportunities, such as potential acquisition of the Seletar Mall, which is majority owned by its Sponsor.

SGX launches REIT Index for Asia Pacific ex Japan

2016-10-06T18:54:00.001+08:00

useful related links:

6 Things Investors Need to Know About a New REIT Index ETF in Singapore

FACT SHEET

ETF: A Road Map to growth

Singapore Exchange (SGX) on Monday launched the SGX APAC ex Japan Dividend Leaders REIT Index, comprising 30 real estate investment trusts (REITs) across the Asia Pacific region excluding Japan.

It will be the first SGX index to be used as a benchmark index for a new exchange-traded fund (ETF).

In addition, the index is the first of its kind that is composed entirely of REITs in the Asia Pacific region that are dividend weighted, as well as accessible through an ETF.

The dividend-weighted index measures the performance of REITs that pay the largest dividends within the Asia Pacific ex Japan region, providing investors with the opportunity to participate in a portfolio offering significant and sustainable yields.

According to SGX in a statement on Monday, the index’s total return over the 12 months to 29 July 2016 was 19.97%, demonstrating a yield over the same period of 4.53%.

The ETF will be issued by Phillip Capital Management, the asset management arm of Phillip Capital, and will be listed on SGX.

The SGX APAC ex Japan Dividend Leaders REIT Index captures over 70% of the region’s REIT universe by total capitalisation, taking into consideration size, free-float and liquidity.

All constituent weights are capped at 10% to ensure greater portfolio diversification. The index was designed and built using SGX’s in-house index engineering expertise, in consultation with Phillip Capital Management.

“The prospective ETF will offer investors transparent and low cost access to a diverse basket of quality REITs, many of which we have been investing in over the past decade through our actively-managed REIT funds,” says Jeffrey Lee, MD and Co-CIO of Phillip Capital Management.

“In view of the growing demand we see from our investors for sustainable income and the rise of passive investing, this is a highly opportune time to launch the first Asia Pacific REIT ETF comprising the region’s largest dividend-paying REITs,” Lee adds.

“I am delighted with the launch of our first Pan-Asian index and that it will be used as a benchmark for an ETF. As SGX’s first truly regional index, it broadens our offering beyond the Singapore equity market, demonstrating our continued push to provide investors access to diverse opportunities,” says Loh Boon Chye, CEO of SGX.

According to a PwC survey, the region’s ETF market is fast developing and poised for strong growth, with ETF assets in Asia expected to reach US$560 billion ($762 billion) by 2021.

MGCCT’s Q1 income spikes 11.2%

2016-08-03T07:02:00.001+08:00

Boosted by Festival Walk, Sandhill Plaza contributions.

Thanks to increased earnings across its properties, Mapletree Greater China Commercial Trust’s (MGCCT) net property income for 1QFY17 jumped 11.2% YoY to $69.4m.

According to a report by OCBC, MGCCT’s earnings also enjoyed additional contribution from Sandhill Plaza (SP), which was acquired on 17 June 2015. Festival Walk (FW) also registered higher revenue for the quarter

Meanwhile, revenue spiked 11.2% YoY to $85m in Q1, with DPU climbing 9.1% YoY to 1.85 S cents.

On the flip side, MGCCT saw moderation in its operating metrics in Q1.

“During the quarter, management secured positive rental uplifts of 13% at FW (retail) and 11% at FW (office), while rental reversions of 6% and 28% were achieved for Gateway Plaza (GP) and SP, respectively,” OCBC revealed.

“Overall portfolio occupancy stood at 97.8%, as at 30 Jun 2016, which was relatively stable versus the 98.6% level at end 4QFY16. Both FW and SP were fully leased, but GP’s vacancy rate increased slightly from 3.2% to 5%,” it added.

15 things I learned from Mapletree Logistics Trust FY2016 AGM

2016-08-01T08:18:00.001+08:00

Mapletree Logistics Trust (SGX: M44U) (MLT) is a logistics REIT with 118 properties in eight countries – Singapore, Malaysia, Vietnam, Australia, Japan, Hong Kong, South Korea, and China. The properties include logistics parks, distribution centres, food and cold storage, and industrial warehouses.
As you can see from the chart above, Singapore’s industrial production has been especially weak the past 12 months. I attended MLT’s annual general meeting to discover how the REIT performed over its last financial year and how the management planned to navigate the tough economic climate.
Here are 15 things I learned from Mapletree Logistics Trust’s FY2016 AGM:

Gross revenue and net property income (NPI) rose 6.0% and 4.8% respectively driven mainly by growth in Hong Kong. However, this was offset by weaker results from Singapore as a number of single user assets (SUAs) are being converted to multi-tenanted buildings (MTBs). Distribution per unit (DPU) fell 1.6% to 7.38 cents. In its most recent Q1 2017 results, MLT has managed to maintain its DPU of 1.85 cents for unitholders.
MLT’s current distribution yield (based on FY2015 DPU) is 6.83%. The current yield is near its historical high yield of 7.10% in 2008. Its historical low yield is 5.13% in 2006.
MLT’s net asset value (NAV) per unit fell marginally from $1.03 to $1.02 year-on-year.NAV per unit has since fallen further to $1.00 in MLT’s Q1 release. With MLT’s share price at $1.08 (as at 27 July 2016), the REIT is currently trading above book value.
Portfolio value grew from $4.63 billion to $5.07 billion year-on-year – largely from fair value gains from Hong Kong properties. Singapore still comprised the largest proportion of portfolio value at 34.4%, followed by Hong Kong (22.5%) and Japan (20.4%). These three countries also make the largest contributions to MLT’s gross revenue.
MLT’s gearing ratio is 39.6% at financial year end. This has since been reduced to 35.7% due to the issuance of S$250 million perpetual securities in May 2016. The REIT’s debt maturity profile is also well-staggered with a maximum of 17% of debt maturing in a single year over the next eight years. About 84% of debt is hedged or drawn in fixed rates.
MLT’s portfolio occupancy rate is 96.2% which has since fallen further to 95.4% in its Q1 release. Singapore has the lowest occupancy levels at 92.9% though, as the CEO pointed out, this number is still higher than the overall Singapore warehouse occupancy rate of 90.4%. MLT’s tenant base is also well-diversified; it has 519 customers and the top ten only contribute between 1.4% to 4.3% of gross revenue.
Weighted average lease expiry (WALE) is 4.5 years. Lease expiry profile is well-staggered with the majority of leases expiring in FY2021 and beyond. The weighted average landlease is 42 years with the majority (54.4%) of land leases expiring in 31-60 years. Only 4.7% of land leases expire in the next 20 years and 28.6% of MLT’s properties are actually freehold (none in Singapore, of course). This gives a measure of long-term stability to MLT’s property portfolio.
One investor made a point that although gross revenue and NPI have increased, unitholders ultimately look at DPU – and MLT’s was decreasing. He then asked the management if they had any strategy to navigate the current difficult conditions. MLT chairman Paul Ma agreed that current conditions are tough especially in Singapore and that the board has taken steps to cushion the slowdown. He mentioned that MLT has diversified its portfolio and without doing so, results could have been much worse. He used Hong Kong as an example where demand for warehouse space is still strong and MLT has seen positive rental reversions. Besides diversification, the REIT is also looking at divesting older assets that no longer fit the portfolio criteria and embarked on redevelopments for assets like 5B Toh Guan Road East and 76 Pioneer Road.
MLT CEO Ng Kiat followed up on the chairman’s account and highlighted that MLT is one of the older REITs in Singapore (ten years old) and as such have older assets that need to be renewed/restructured. She mentioned that a number of SUAs in Singapore are up for renewal and the REIT is in the process of converting them into MTBs. When a tenant leaves an SUA, its occupancy rate immediately drops to zero. When the SUA is finally converted to an MTB, it takes time to find new tenants to ramp up occupancy levels. In the case of MLT, this SUA-to-MTB conversion happens to take place during a tough economic period. The CEO asked for patience during this transitional phase and that results won’t be immediate but unitholders will see the efforts pay off down the line.
A unitholder enquired about the pros and cons of converting SUAs to MTBs. The CEO explained that a property loses overall net lettable area as the common areas can no longer be leased and expenses increase as the REIT now has to manage shared services like security. The positive is MLT is able to charge higher rents which, in most cases, is more than enough to offset the higher costs. MTBs also allow the REIT to diversify its tenant base.
One unitholder asked the board on the reasons why they decided to enter the Australian market. The CEO replied that Australia’s market is highly scalable and properties there enjoy long WALEs with annual rental escalations of 2.75-3%. Australia is also part of the board’s strategy of diversifying MLT’s portfolio.
A unitholder by the name of Mr. Chan expressed his concern if any of MLT’s properties housed chemical or hazardous materials as the REIT continues to expand into foreign countries. He gave the example of the chemical explosion in Tianjin, China which killed 173 people and ranted for a few minutes about the danger to MLT’s reputation and business if such an incident was to occur. The CEO calmly replied that only 3% of MLT’s tenant base is in the chemicals industry. Beyond that, MLT has tenancy agreements that require tenants to comply with all regulatory requirements and safety checks. In less ‘well-governed’ countries, MLT also sends a surveillance team to check on tenants at least once a month. The answer wasn’t enough to satisfy our unitholder however and he carried on with his rant when he regained the microphone. At the end, the chairman firmly stated that MLT’s properties are not exposed to hazardous chemicals like Tianjin and the REIT is very serious about the safety and security of its properties.
Another unitholder questioned how MLT made a net foreign exchange loss of 18.8 million for the financial year. CFO Wong Mei Lian explained that MLT usually borrows in foreign currency as a natural hedge when acquiring assets overseas and gains/losses occur when forex rates move. She reassured the unitholder that the losses are unrealized and non-cash in nature which will not affect DPU. The chairman carried on with his explanation that REITs have to hedge their foreign exposure to stabilize its distributions to unitholders. On the contrary, if a REIT doesn’t do so, unitholders will be even more unhappy with higher fluctuations in DPU.
One unitholder asked if Japan’s negative interest rate policy (NIRP) affected the REIT’s Japanese assets. The CFO replied that MLT has made small interest savings in the unhedged portion of Yen loans, but the amount is small ($1 million) as Japanese interest rates were already extremely low to begin with. The CEO added that NIRP meant that investors are now chasing harder for yields which have made their Japanese assets more valuable. This might open some divestment opportunities but the management will wait and see on this. Compared to NIRP, the REIT is more concerned about the upcoming supply of logistics/warehousing space in Tokyo.
Finally, a unitholder asked why MLT is doing so well in Hong Kong, unlike Singapore. The CEO said there is a limited supply of warehouse space in Hong Kong as landowners are converting warehouses to commercial and residential spaces. This has kept demand high which is why MLT has seen positive rental reversions and higher asset revaluations in Hong Kong. To add, the land is freehold in Hong Kong. On the other hand, Singapore has 1.4 million square feet of logistics/warehouse space coming on-stream. 70% of this is already pre-committed but CEO Ng Kiat conceded that it is still a large amount of supply. With the slowing economy and shorter leases, MLT has challenges to face in Singapore.

This article first appeared on fifthperson.com

REITS Quick Update: Don’t count on a Keppel REIT turnaround soon, says Moody’s

2016-07-12T23:26:00.001+08:00

Declining rental income is a thorn in its side.

A reversal might be farther than expected for Keppel REIT, as declining rental income support and soft market conditions in the city-state weigh on its rental pricing power and earnings.

According to Rachel Chua, an analyst from Moody’s, underlying rental income is not expected to increase to sufficiently compensate for the decline in income support levels since 2014 under the current challenging market conditions.

“Income support at Keppel REIT decreased to SGD20 million in 2015 from SGD68 million in 2013. Going forward, rental support will reduce over the next three years before falling away completely,” Chua said.

Additionally, she added that the support arrangement at Marina Bay Financial Centre (MBFC) Phase 1 was exhausted in 2014 while those at Ocean Financial Centre and MBFC Tower 3 will cease in 2017 and 2019 respectively.

Meanwhile, she said the weakness in the firm’s financial profile is partially balanced by the trust’s portfolio of high-quality and strategically-located office assets in the prime central business districts of Singapore and Australia.

http://sbr.com.sg/commercial-property/news/don%E2%80%99t-count-keppel-reit-turnaround-soon-says-moody%E2%80%99s

S-REITS Canaries in the coal mine

2016-05-17T13:06:00.002+08:00

S-REITS showed resilience in both financial results as reported for 1Q2016 and unit price performance.

However, headwinds such as interest rate rise, supply-demand condition, weak economic growth, and exchange rate volatility are still valid concerns. I expect S-REITs price performance to be soft or same as general market. Nevertheless, good REITs will still be good investment for long term income growth and value appreciation.

Below are reports excerpts from OCBC and Maybank.

Maybank Kim Eng issued a report containing detailed analysis. Click the following link if you are interested.
Note: Maybank has a tendency to lean on the bear side for S-REITS. You should cross reference with other reports in order to form a balanced opinion.

https://factsetpdf.maybank-ke.com/PDF/26212_SF__0ef4ab8d75844cd883f7bc2ac0acf68b.pdf

A Tale of two stories ( REITs Vs Blue Chips)

2016-03-01T21:58:00.001+08:00

Stock Markets worldwide saw a volatile beginning in 2016.

Shares in Singapore local markets mostly moved sharply lower with high volatility, especially for the banking and energy sector.

REITs with solid fundamental held well. It is clear that REITs as a sector offers great value to investors during volatile time. It should be in every income investor's staple.

Let the charts speak for themselves.

It is clear that REITs with low yield are most resilient among all. ( Note: It is not to suggest that REITs with low yield will always perform better in any markets situation. Only to show that good REITs can be more resilient and less volatile in this commodity-induced bear markets. )

Blue chips -- Banks ( DBS, UOB)

Blue chips -- Real Estate/Energy/Telco( CapitaLand, CityDev, Keppel, Singtel)

REITs ( low yield) ( CMT, FCT)

REITs ( high yield) ( SoilBuild, Sabana)

Looking forward, the sky is still not clear for REITs. Besides the demand supply issue which is local, the single most important factor is the long-waited interest rate rise, which is now a hostage of heightening markets volatility and slower economic growth.

It is hard to tell the trajectory of interest rate rise. Currently, markets are expecting a slower increment, which is supposingly good for REITs? But it is not surprising that FED insist on its own pace which is faster than current market expectation. Hence more volatility and possible downside risk for REITs.

However,in any case, good REITs with solid fundamentals are still worth holding for long term income investors, as it is not only a source of stable income, but also serve as stabilizer to portfolio value.

Considerations before investing S-REITs at this moment...

2015-11-15T21:00:00.002+08:00

The above chart shows the S-REITs index (blue) vs STI(amber) for the last decade.

Currently the S-REITs index level is at about the level after the recovery from 2008 GFC. Breaking this level could indicate a deep downside. However, more likely the downside won't be so deep. Should it happen, make sure you are prepared to catch the once-a-decade opportunity.

There are headwinds for S-REITs in the coming quarters and years.

Firstly, interest rate rise;

Secondly, increasing supply and weakening demand, especially in office and hospitality sectors;

Thirdly, currency volatility affects many S-REITs which holds foreign assets.

On top of that, the stock market in general is facing new reality and may see further downside next year.

You should not think or act against the ruling down trend.

However, too excessive pessimism does no good either. You should not let yourself be psychologically blackmailed to sell your holdings at extreme price, with exception of permanent fundamental deterioration. (Diversification can reduce the risk)

At this moment, when you balance your REIT portfolio, the questions should be asked are :

1. What is the sustainable level of DPU after taking into account of interest rate rise and adverse FX rate change, and the supply-demand scenario(generally give it a 20% discount)?

2. Use the sustainable level DPU divide by the current price to get current yield, say 7% ( 7cents/1dollar).

3. Then use the current yield to get the 1-year, 2-year, ...break even price. ( 0.93, 0.86...)

4. With the above considerations in mind, pace you investment size, try to avoid timing concentration risk.

5. During the downward cycle,do not buy too aggressively when the price begins to break last time support level. Usually the price will test new low which can be much lower than your expectation.

6. Do not wish quick recovery or big quick rise of S-REITs price.

7. Always balance your portfolio regularly (quarterly) and ditch without hesitation those Reits with fundamental deterioration.

8. Do not be too pessimistic. Generally speaking, you can't be too terribly wrong with Reits investment. The downside risk is quite limited as compared to many other business.

Frasers Commercial Trust - Steady growth path.

2015-10-26T21:23:00.001+08:00

Another dividend season comes as expected!

So far most S-REITs results are in line with expectation. Price correction since Aug seemed overdone. The S-REITs' prices can be expected to remain in stabilization before next frenzy. While riding the storm, investors should use this good opportunity to observe which REITs are bouncy, which are not, for good reasons.

FCOT is among the REITs that are badly wreathed and also strongly bounced. We know that FCOT is not a typical office REITs as compared to CCT or KepReit with most assets in CBD. FCOT's Singapore assets are office in city fringe and business park. Its recent develop in Australia makes half of its income from the down under in future. Forex poses some risk(volatility), for sure. However, the management has a track record to be prudent and deliver stable results.

I have held this counter for very long time. No reason for me to abandon this counter as of now.

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From DBS

On a steady growth path

· 4Q15 DPU of 2.52Scts was up 14% y-o-y – in line
· Contribution from 357 Collins Street to driveearnings in FY16
· Maintain BUY, TP S$1.53

Highlights

Alexandra Technopark the clear winner. FCOT’s 4Q15 distributable income of S$S$19m grew 26% y-o-y, on the back of a 45% jump in NPI at Alexandra Technopark (ATP)
following the expiry of its master lease in August 2014, as well as maiden contribution from 357 Collins Street.

This more than offset declines in contribution from Central Park and Caroline Chisholm Centre due to the weak AUD.

Outlook

Positive but moderating reversions for Singapore portfolio. The Trust continued to reap upside from its underrented Singapore portfolio, as China Square Central (CSC), 55
Market Street and ATP recorded positive reversions of 8%, 3% and 18% respectively.

However, we expect reversions to moderate going forward, given that (a) ATP’s passing rent for expiring leases are S$3.90 vs signings of S$4.00, and (b) CSC and 55 Market Street could see some vacancy and rental risk as keen competition for tenants in Grade A offices amid large supply spill over into Grade B offices.

Australia portfolio to remain operationally steady. Earnings growth in FY16 will be driven by full year contribution from the recently acquired 357 Collins Street in Melbourne. With
97% of leases embedded with average annual escalations of 3.9% and a long WALE of 5.6 years, this asset will provide earnings visibility and growth for the Trust. Rio Tinto (which accounts for 6% of the REIT’s gross income) has signed a 12-year lease extension at Central Park from FY18 to FY30. This renewal improves the property’s WALE from 2.9 to 7.1 years, reducing vacancy risk in a building where many of its tenants have been impacted by the commodity slowdown in Australia.

Valuation:

We have assumed some distribution from capital to support the temporary loss of income at CSC due to construction of the hotel as well as interior renovation works. This will also
help to mitigate anticipated currency losses from the Australian properties in light of a further weakness in the AUD. At current price, FCOT offers investors a dividend yield of 7.1% and potential total return of 17%, which is attractive, in our view. We maintain our BUY call, with TP raised slightly to S$1.53 to account for our revised earnings estimates.

Key Risks:

Rising interest rates. Average cost of debt stood at 3.0% as of 4Q15. The Trust has no refinancing needs until FY17, and has hedged 81% of gross borrowings, giving it a good
measure of protection against short-term fluctuations in interest rates. However we expect interest rates to climb slowly going forward in line with market expectations of a
rate hike.

Unfavourable forex movements . As FCOT derives c.45% of its NPI in AUD while distributions are based in SGD, foreign currency fluctuations will have an impact on distributions.

The Manager has hedged its AUD exposure on a rolling basis of 6-9 months, and given the negative movement of AUD, we have lowered our exchange rate assumption.

REITs investing is all about Patience

2015-08-10T15:46:00.001+08:00

The FTSE REITS index was moving down recently. It could go down further as the Fed's interest rate rise is widely expected in Sep or Dec 2015.

There could be better entry prices levels later this year or next year. I was doing some re-balancing of my Reits portfolio. Now the cash level is higher than ever.

Although many REITs' prices had gone down significantly, at this moment, it is better not to try to be smart to "bottom fishing" any Reits. (Bottom fishing or catching a falling knife!) Let's wait for the interest rate rise to confirm. Let's act until we see clear signal of trend reversing.

In any case, I would rather catch up a rising trend late, than jumping in too early and was caught in a downtrend.

I have no intention to mock value investors whose base their decisions on fundamentals. But investors should not ignore technical charts. The prices tend to move in trends, as it is doing now. While I recognize the importance of accounting/financial reports, I must respect human nature more.

Reits investing is all about patience.

Patience to wait for good price level.

Patience to hold for it to grow.

Patience to wait for the downtrend to finish its course.

Patience will be rewarded.

Finally Let's not forget to celebrate Singapore's 50th birthday! Many best wishes to our Home, our Singapore!

Results Analysis of CapitaLand Mall Trust 2Q FY2015 ( Mar-Jun15)

2015-07-24T19:26:00.003+08:00

I have CMT in my portfolio and intend to hold.

Singapore's first and largest REIT is also one of the best managed REIT. It should be added to everyone's stable. The fundamental is solid.
Oversupply of retail space is one concern.
Interest rate rise is another. But it worth noting that in last interest rate rising cycle, CMT unit price actually increased, and at certain period, the yield is lower than saving rate.( See charts below). CMT asset was growing then. Well, of course past does not represent future.
The threat from online shopping is not valid to CMT. Singapore is a dense populated city. Online shopping and shopping mall does not kill each other, but help each other. CMT's well located, nice shopping malls are not just commercial places. They are symbols of Lion City, representing Singaporeans' lifestyles.

Need to say that REITs are of course no Google or Alibaba. It is not realistic to expect huge returns from them. But CMT is one of the best REITs to hold for decent income distribution and long term capital appreciation. The only factor investors need to control and also is the only factor investors can control is the purchase price. For this counter, if you are ok with its yield, as long as you don't load at too high price level, you are fine.
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From DBS:

Future-proofing the REIT

2Q15 DPU up 0.7% y-o-y to 2.71Scts
Weak rental reversions of 4.6% unsurprising
Debt tenure extended to a mind-boggling 6.1 years
Maintain HOLD, TP raised to S$2.25

Highlights:
Results in line. CMT’s 2Q15 DPU rose 0.7% y-o-y to 2.71Scts,bringing 1H15 DPU to 5.39Scts (+2.5%), which is in line with our estimates.

If we include cash retained (S$3.2m) in 2Q14 for comparison purposes, income available for distribution would have fallen 3% y-o-y to S$94m. This was largely attributable to lower occupancy rates at Clarke Quay (85.2% vs 100% in 2Q14) and JCube (82.3% vs 95.5%) as these assets undergo repositioning exercises, as well as AEI-related disruptions at IMM (89% vs 99.3%) and Bukit Panjang Plaza (98.2% vs 100%). However, this was mitigated by interest savings of S$4.6m and better contribution from Bugis Junction post-AEI.

Debt tenure extended to a mind-boggling 6.1 years. As the Trust paid down its S$700m MTN due in April, its weighted average debt expiry profile jumped to 6.1 years, which is the longest ever achieved by any S-REIT.

With >95% of borrowings at the Trust level swapped into fixed rate debt and no debt refinancing obligations until 2017, CMT is very well positioned to ride out near-term interest rate shocks with minimal impact on its balance sheet and distributions. This is a vindication of their earlier efforts to take advantage of low interest rates and swap rates in the last 1-2 years, and term out their debt expiry profile, which will give them ample flexibility to pursue various funding options when they acquire Bedok Mall, which we estimate will be 1-2% DPU accretive.

Outlook:
1H15 reversions of 4.6% were weak but unsurprising. Rental reversions were below par for Funan (+2.3%), Raffles City (+1.6%), and JCube (-13.5%). But we note that reversions were better for non-discretionary malls such as Lot One (+6.2%), Tampines Mall (+6.8%), Bukit Panjang Plaza (+7.0%) and Junction 8 (+9.9%).

While reversions were weak, they did not come as a shock. In our 1Q15 results comment, we noted that reversions at certain properties were weak despite the strong headline number of 6.1%. As more leases are renewed and committed, we are starting to see the effects of rising labour costs and declining retail sales putting pressure on rental reversions, something that the market is widely expecting.

We are very positive about the Manager’s proactive stance in embarking on AEI or repositioning exercises to keep the properties relevant to consumers even amid headwinds in the retail sector

Valuation:
We have raised our TP slightly to S$2.25 from S$2.20 as we lower our property expenses and property expenses growth rate assumptions to factor in utility savings into our estimates. At its current price, CMT is trading at a DPU yield of 5.2-5.4% for FY15-16. We maintain our HOLD call on valuation grounds.

Key Risks:
Occupancy risk. As several properties undergo repositioning exercises, vacancy rates are expected to go up for a short period of time. Prolonged lower occupancy rates would
impact rental income to the REIT, which would in turn negatively impact distributions.

Economic risk. A deterioration of the economic outlook could have a negative impact on retail sales and thus cap landlord's ability to raise rents.

CapitaLand Mall Trust 2Q FY2015 results (Mar-Jun15)

Results Analysis of Frasers Centreporint Trust 3Q FY2015 ( Mar-Jun15)

2015-07-23T19:54:00.000+08:00

FCT is one of the oldest and largest holding in my REITs portfolio. Solid fundamental. Love its monopoly position in retails space in north Singapore. As far as the price concerns, 2.00 is an important pivot. Above this, it can test 2.20, if falling below, 1.8 ( NAV) can be expected.

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STEADY PERFORMANCE

• 3QFY15 DPU +0.5% YoY
• Positive rental reversions of 5.3% in 3QFY15
• Potential AEI

3QFY15 results met our expectations

Frasers Centrepoint Trust’s (FCT) 3QFY15 gross revenue jumped 14.3% YoY to S$47.1m due to stable organic growth and additional contribution from Changi City Point (CCP), which was acquired on 16 Jun 2014. NPI rose 12.8% YoY to S$32.9m, while DPU inched up 0.5% to 3.04 S cents.

For 9MFY15, FCT’s gross revenue and DPU grew 16.1% and 4.1% to S$141.8m and 8.75 S cents, respectively. The latter constituted 74.1% of our FY15 forecast. If we add back S$0.5m of income retained in 9MFY15, which we expect to be distributed in 4QFY15, adjusted 9MFY15 DPU would have formed 74.6% of our full-year projection.

Operational trends still healthy

FCT experienced an encouraging 3.6% YoY growth in shopper traffic for its malls (excluding CCP), while tenants’ sales rose 2.2% YoY from Mar- May 2015, highlighting the resiliency of its portfolio amid softness in the retail industry. Average rental reversions of 5.3% were achieved in 3QFY15, bringing 9MFY15 rental uplifts to 6.2%. Although Anchorpoint’s rental reversion was -5.1% in 3QFY15, the space renewed made up only
1.7% of the mall’s NLA. With 20.5% of NLA expiring at Anchorpoint for the remainder of FY15, management assured us that the negative rental reversion in 3QFY15 was not representative of the sentiment at the mall, and remains optimistic on achieving positive rental reversions for the upcoming renewals. Overall portfolio occupancy stood at 96.5% (-0.6 ppt QoQ), with the drag emanating largely from a lease expiry of an anchor tenant at Bedok mall (9% of NLA). FCT is currently in negotiations with prospective tenants, including a gym operator.

Frasers Centreporint Trust 3Q FY2015 ( Mar-Jun15)

Results Analysis of Keppel DC REIT 2Q FY2015

2015-07-18T16:34:00.002+08:00

I have no vested interest in this counter as of now, and have no intention to buy at this moment, for my primary concern is its capex requirement. As instructed by Warren Buffett, I do not like dividend players with capex, such as HPH trust. It is not the best kind of REITs that you can simply buy and hold.

Plus, it is a "new breed" of REIT, one of a kind in S-REIT family. With the looming interest rate increase, I will keep the money for now, and see if better price presents later this year.

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From DBS:

Acquisitions are key

Solid set of 2Q15 results Higher Singapore earnings mitigated by one-off property tax provision
Overseas distribution income fully hedged until 2017
Maintain BUY, TP S$1.12

Highlights
2Q15 DPU of 1.62Scts beats IPO forecast by 2%, in line with our estimates. Keppel DC REIT’s 2Q15 revenue of S$26m beat prospectus forecasts by 4% due to higher variable
income from Singapore and cost recovery clawbacks from tenants at Gore Hill. NPI variance was smaller at 3.4%, as the Trust made a one-off provision for higher property taxes levied on the Singapore data centres. 2Q15 DPU came in at 1.62Scts, bringing 1H15 DPU to 3.56Scts. This is in line with our estimates, as we expect a stronger 2H15 stemming from the acquisition of Intellicentre 2 in Australia.

Hedging profile. Major currencies that will impact earnings - AUD and EUR - have been hedged for 2 years at better than current spot rates, minimizing any currency fluctuations going forward. However, rolling forward these hedges might mean translation losses from 1H17 onwards if spot rates of the AUD and EUR remain at current levels.

Ability to gear up to acquire; significant acquisition size might trigger an equity fund raisings. In May 2015, Keppel DC REIT announced the acquisition of Intellicentre 2 in Sydney, Australia, for S$46m. While post-acquisition gearing level of 29.5% is healthy in our view and there is still headroom to acquire. While the manager is comfortable to gear up to 40%, the intention is to keep gearing at a low level of 30%, in order to keep financial flexibility for opportunistic acquisitions. This might mean that future acquisitions, if significant, will likely be funded through a 30%/70% debt to equity ratio in order to maintain a 30% gearing level. Howver, given the stock is trading at an implied yield of close to 6.0%, acquisitions are likely to be accretive.

The Manager remains on a constant lookout for third party acquisitions in Europe Germany, France, Ireland) and the Asia Pacific (China, Korea, Japan, Australia) which will drive earnings higher. In our view, the most visible opportunity would be the injection of T27 in Singapore from the Sponsor, which we understand is seeing strong leasing interests and a probably time for acquisition might be from 1H16 onwards.

Valuation:
Our DCF-based target price is maintained S$1.12 which include S$50m of acquisitions into our FY16 forecast. The stock offers attractive yields in excess of 6.2% and upside will hinge on better than expected returns from acquisitions or embarking on larger sized acquisitions.

Key Risks:
Higher maintenance capex relative to other asset classes. Keppel DC REIT is responsible for maintenance capex for certain properties in the portfolio. Due to the shorter lifespan of a data centre’s infrastructure, it is possible that the REIT may have to rely on borrowings to fund these works, which would result in higher gearing levels, or there could be some pressure on the REIT’s cash flow, potentially affecting its ability to pay distributions.

Competition from larger third party data centre players. The data centre market is dominated by several large international operators which have been aggressively
expanding into markets where Keppel DC REIT has a presence. Keppel DC REIT may face higher barriers to entry should it wish to expand into areas where it does not have a
significant presence, as tenants prefer to remain with providers they are familiar with.

Currency risk. As a Singapore REIT, Keppel DC REIT pays its distributions in SGD, even though it derives income in AUD, JPY, GBP and EUR. Any depreciation of these currencies
against the SGD would therefore negatively affect distribution that investors receive. Management has entered into hedging contracts to limit currency volatility on foreign
currencies vs SGD.

Risk to our estimates from lack of acquisitions. We previously imputed S$50m worth of acquisitions in FY16, based on a 35% gearing limit, which we have maintained for now. However, given the Manager’s guidance that it is keen to acquire T27 (which had an estimated value in excess of S$200m) in FY16, there could be downside risks to our
estimates if there is an EFR exercise and DPU accretion is diluted.

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Occupancy is key--- Results Analysis of SoilBuild REIT 2Q FY2015

2015-07-17T21:51:00.001+08:00

I have a small position in this counter. Good results since IPO. Decent yield. Good management. It is a small industrial counter, so risk premium is a bit higher.

However, price has gone up since the time I loaded. I will not buy at this moment due to unattractive price, and interest rate rise concern.

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Occupancy is key

2Q15 DPU of 1.615 Scts in line
Locking in forward renewals; performance to remain stable as the manager actively manages leasing risks
Maintain BUY, TP of S$0.95 as we roll forward valuations

Highlights

2Q15 DPU of 1.615 Scts in line. Gross revenues and net property income rose by 17.2% and 19.0% respectively. The better operational performance was driven by the recently
completed acquisition of 72 Loyang Way, supported by stable portfolio occupancies of 99.8%. DPU of 1.615 Scts grew by a lower 7.7% y-o-y largely due to increase in number of units post placement exercise.

Stable operational performance. Portfolio remained stable with steady occupancy rates of 99.8%. The trust renewed and signed new leases at rental reversions of between 1.6-5.0%,
which is at a modest rate compared to 1Q, but in line with expectations, given the current tough operating climate.

Interest costs to edge up. SBREIT is actively managing its debt expiry profile and is in active discussions to term out its debt till 2019-2020. The manager expects interest costs to rise by c.20bps from the current rate of 3.49% post refinancing,given rising hedging costs. We have tweaked our interest forecasts higher marginally to account for this update.

Outlook
Acquisitions to continue growing portfolio. Apart from 3rdparty opportunities that the manager might be reviewing, we believe a medium target could be the acquisition of 566 Bukit Batok St 23, a light industry property which is estimated to be completed in 1Q15. With gearing at c.36.1%, SBREIT has further headroom of S$50m of debt-funded acquisitions to reach c.40% gearing. Thereafter, we believe that an EFR could be needed to partly fund any further meaningful acquisition opportunities.

Forward renewal of expiring leases. The manager has forward renewed expiring space in 2015 and is left with 11.8% of its NLA of close to 413k sqft of space left to be renewed in
2H15. We understand that there are some non-renewals but the manager is optimistic that replacement tenants can be found. In addition, we are comforted by the fact that expiring
rent levels are low relative to current market spot rent levels and thus rental renewals should be stable. That said, the manager is taking a more defensive strategy to maintain
occupancy rates rather than hiking rents, which we believe will work well in this environemnt. We are maintain our 3-5% rental reversion forecasts.

Valuation:
Our DCF-backed TP is S$0.95 as we roll forward valuations.Supported by an attractive yield of >7.5%, we believe that at current levels, SBREIT offers an attractive total return of
>15%. Maintain BUY.

SoilBuild 2Q FY15( Apr-Jun 2015) Financial Results Slides

Results Analysis - SPH REIT 3Q FY2015

2015-07-10T22:39:00.002+08:00

I regard this counter as one of the most stable and prudently managed S-REITS. Like its parent, SPH Reit is all good but the price. The current yield of 4-5% is very low and quite safe, but does not fit my investment thesis.

However, I will surely consider it if the price drops to attractive levels (e.g. yield>6.5%) due to general market panic, although I doubt the price will drop that much. This counter should be very resilient. Grandpa and grandma's favorites.

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Steady as she goes

SPH REIT’s results were in line with expectations, with 3Q/9MFY15 DPUs at 25%/75% of our full-year forecast. YTD, the REIT recorded positive rental reversion of 9.2% for 17% of its portfolio by NLA. We expect the portfolio to remain stable, with most of the leases expiring in FY15 renewed. We maintain our Hold rating and DDM-based target price of S$1.07 as we believe the REIT
is fairly valued at 5.2% FY15F dividend yield (vs. peers average of 5.6%). Re-rating catalyst could come from potential yield-accretive acquisition of The Seletar Mall, given the REIT’s below-peers gearing of 26%.

Results in line

SPH REIT’s 3Q/9MFY15 DPUs were at 25%/75% of our FY15 forecast. Revenue and NPI improved 1.6% and 4.3% yoy, respectively, on higher rental income from both Paragon and The Clementi Mall. Occupancy dipped to 99.8% due to an office lease termination at Paragon while NPI margin rose 2% pts to 76.8% on utilities cost savings. SPH REIT recorded rental reversion of 9.2% for 17% of its portfolio by NLA YTD, despite a challenging retail environment. Footfalls were stable yoy and tenant sales were marginally better. After a 1.5% income retention, income available for distribution came in at S$34.1m (DPU 1.35Scts).

Stable outlook with acquisition potential

We expect earnings to remain stable with most of the leases expiring in FY15 renewed. Despite retail headwinds, we continue to expect positive rental reversion as Paragon makes up more than 80% of its NPI and the supply of retail spaces along Orchard Road is limited. Apart from the creation of an
additional 5,000sf from AEI works at Paragon, to be completed by FY16, more visible growth could come inorganically via acquisitions, with its gearing at 26% (lowest among retail S-REITs). We believe The Seletar Mall, jointly owned by SPH (70%) and United Engineers (30%), could be a likely acquisition target. The mall has been in operation for about half a year at near full occupancy, and
we see healthy shopper traffic in our recent visit. The REIT had also rebalanced its loan maturity and cost profile to 3.2 years at an average 2.55% while the portion of fixed rate loans has been raised to 85%.

Maintain Hold

We maintain our Hold rating. SPH REIT appears fairly valued at 5.2% FY15F dividend yield vs. peers’ average of 5.6%. Re-rating catalyst could come from potential yield accretive acquisition such as The Seletar Mall.

SPH 3Q FY15( Mar-May 2015) Financial Results Slides