Q1’17 Report Card on Reits and Business Trusts on SGX

Contributed by: warriortan

Quoted ” A stock dividend is something tangible – its not an earning projection; it’s something solid, in hand. A stock dividend is a true return on the investment. Everything else is hope and speculation” unquoted … famous words from Richard Russel, an American writer on finance and the founder of the “Dow Theory Letter”

By now, all the Reits and Business Trusts listed on SGX have reported their results for this quarter.

Below is a simple review of up to date Dividend Per Unit (DPU) and the corresponding yields based on their closing price on 10 March 2017.

Price ($) DPU (cents) Yield (%)
Asian Pay TV (Taiwan) 0.455 6.5 14.3%
SoilBuildBizReit 0.635 6.3 9.9%
CACHE 0.805 7.4 9.2%
VIVA ind Trust 0.780 7.0 9.0%
Ireit (Germany) 0.720 6.3 8.8%
Ascendas Hospitality (Global) 0.750 6.6 8.7%
LippoMapleT (Indonesia) 0.390 3.4 8.7%
Croesus Retail (Japan) 0.865 7.2 8.3%
AIMSMIREIT 1.330 11.0 8.3%
Ascott Reit (Global) 1.085 8.8 8.1%
FraserComm 1.250 10.0 8.0%
OUE HT 0.680 5.4 8.0%
CDL Hospitality 1.390 11.1 8.0%
Fraser Hospitality (Global) 0.675 5.3 7.9%
Sabana 0.455 3.5 7.7%
Accordia Golf (Japan) 0.755 5.8 7.7%
Far East Htrust 0.585 4.5 7.7%
MaulifeReit (USA) 0.835 6.2 7.4%
Frasers Logistics (Australia) 0.945 7.0 7.4%
OUE Com Reit 0.680 5.0 7.4%
MapleTree GCC (Hong Kong) 0.970 7.1 7.3%
MapleTree Logistics 1.065 7.5 7.0%
Cambridge 0.570 4.0 7.0%
Starhill Global 0.730 5.0 6.9%
MapleTree Industrial 1.670 11.3 6.8%
CapitaRChina (China) 1.420 9.5 6.7%
First Reit (Indonesia) 1.280 8.5 6.7%
Ascendas 2.470 16.0 6.5%
MapleTree Commercial 1.475 9.1 6.2%
FrasersCentrepointTrust 1.965 11.8 6.0%
CapitaComm 1.530 9.1 5.9%
Keppel DC (Global) 1.150 6.7 5.8%
Keppel Reit 1.020 5.9 5.8%
CapitaMall 1.935 11.1 5.8%
Suntec Reit 1.740 10.0 5.7%
SPH Reit 0.965 5.4 5.6%
Ascendas India (India) 1.065 5.7 5.3%
ParkLife REIT 2.410 12.2 5.1%

In graphically form,

ReitGraph

The yield itself tells you nothing about whether the company is worth investing or not. Detailed analysis of the company strategy, its competitive advantage and its delivery of the financial results are fundamentally the way to evaluate the company performance and whether it is doing well or not.

Nonetheless, every data has its value. Below are my 2 cents worth of thoughts ….

The Outlier (Business Trust – Asian Pay TV Trust) – 14% yieldUnknown

So, from the data and graph, it can be clearly seen that Asian Pay TV is a complete outlier. Most investors do not believe that it can maintain this level of dividend payout given its free cash flow and its capex needs to meet demands and compete effectively in the Taiwanese cable TV market. However, the management continues to guide investors that they can expect the same dividend payout this year – but are you willing to ride with them? (a 14% dividend yield is extremely attractive … maybe a small stake won’t harm … LOL)

Next come the more riskier Reits of today – the industrial properties owners and the foreign properties owners.

Industrial Property Reits (7-10% Yield)

The expected slowdown of Singapore economy and the manufacturing sector in particular is expected to hit the industrial properties market relatively hard. In the last one year, occupancy in this sector has declined. The slowdown may bite even harder this year and dividend payout may be affected … hence, while dividend yield is high now, we can’t be sure that this can be sustained when they have empty warehouses and having tenants defaulting when they close down their businesses. Soilbuild

The diverse nature of the industrial reits from Business Park to Science Park to Warehouse to flatted factory and the complication of master lease (one company leasing a block of building) versus multiple leases within a building causes them to have the widest yield spread within a group.

The darling and exception by offering high stability is in sector is Ascendas Reit. It is the largest Reits on SGX now and is backed by Ascendas Group which is owned by Temasek Holding. Ascendas has several attractive business parks which remain very much buzzing with activities. Its recent major entry into Australia is expected to diversify its income source and provide further stability to its dividend payout – hence, investors like it so much that they are willing to accept a lower yield (only 6.4% as compared to 8-10% of its local peers like SoilBuildBizReit, Sabana, Cambridge). Ascendas has been my favourite for a long time. It has a proven track record of delivering on its promises. I will continue to invest in it and add to my portfolio if there is an unexpected fall in its share price.

Foreign properties Reits (~ 8.0 to 8.5 % Yield)foreign1

Reits that purely holds foreign properties are generally considered as high risk due to currency risk and also the unfamiliarity of the country and the properties they hold. However, on the flip side, they offer investors an opportunities to diversify and invest in properties in foreign countries. These countries include Australia, Japan, Indonesia, Germany, USA, China and Hong Kong.

foreign2

Among these counters, I personally like Croesus Retail (Japan), Frasers Logistics (Australia), MapleTree Greater China Commercial (Hong Kong) and Capitaland Retail China.  So far, they have delivered their promises and offers growth opportunities. (Yes, as you may notice, I like the retail sectors. While e-commercce will have an impact but I believe people will still like to shop in physical shop or get together for a meal or coffee in a comfortable air-conditioned family friendly environment)

The Hotels (~ 7.5 to 8.0% Yield)hotel

Hotels Reits are difficult to analyse because they are often not only the landlords but also the operators that earn the income by helping to operate the hotels. So, their performance depends not only on well they maximise rental but also how well they operate. Currently, hotel reits are not doing so well due to reduced economic activities and generally oversupply in Singapore. Revenue per room has come down as well. Most of the hotels reits also have overseas exposure which made them vulnerable to foreign currency risks. This is a sector I would avoid unless I can understand its operation and exposure very well. For pure Singapore play, you can consider Far East Hospitality Trust and OUE Hospitality Trust. The big brother is CDL Hospitality – generally quite safe.

The Retail (5.5 to 7.0%)IMM

The group of Retail Reits is my favourite as I believe Singaporeans still like to spend time in a shopping mall. Furthermore, most of these reits own local shopping centres and it is easy for one to pay them a visit to sense the vibrancy and human traffic for myself. Besides renting out their space to retailers, they often get a cut of their revenue to have a skin in the game. The value add they bring is not only low rental rate but also design of the mall positioning, the marketing strength to bring people to their mall and thus provide business to their retailers.

Capitaland Mall Trust is my favourite. The first reit to be listed on the SGX. It has been the largest reit on SGX until it was dethroned recently by Ascendas Reit. Its suite of local suburban shopping centres that are centrally location and well connected to major nodes of the transportation network in Singapore provide a stable and regular income with captive human traffic. Furthermore, through the years, it has proven to have the expertise to increase the value of their shopping centre by creative maximising the available space for rental income. SPH Reit which has only Paragon and Clementi Mall is also worth mentioning as it has the lowest gearing of 26% amongst all the Reits on SGX.

The Local Hospitals – Parkway Life Reit (5%)plr

The reit occupying the bottom (i.e. the most stable in my view) is Parkway Life Reit, which owns the 3 local famous private hospitals (Gleneagles, Mount E and Mount Alvernia) and some Japanese hospitals. Its stability is derived by very long leases and the stability of the healthcare providers. It is a favourite for me too except that the yield is often the lowest (i.e. most expensive) which deters me from having too large a position. However, when for whatever reasons, its yield goes up (i.e. price comes down), I will take the opportunity to buy a few. But such opportunity is rare to come by … hence, patience needed.

The local big Reits … ( 5 to 7% yield)mapletree

The bottom half of the table is occupied predominantly by the big local Reits players. You have Capitaland, Ascendas, Keppel, Frasers and Mapletree. Generally, their reits are quite well run and they have a strong sponsor behind. It is generally safe to hold these reits as long as they are attractive priced.

Non traditional Business Trust / Reits

There are also a few non-traditional business trust and reits on SGX – namely Accordia Golf Trust that owns golf courses in Japan and Keppel DC Reit that owns data centre. They offers some diversification away from the usual industrial, commercial. hospitality and retail reits.

High Risk High Return

Well, there are various sectors that you can make choices to invest in. Even within the same sector, there are choices between the various trusts of different reputations,  management capabilities and sponsors.

Within the Reits’ space is where you can see the theory of high risk high returns play out very well, very much similar to bonds. So, if you see a high yield reit, you will need to ask a lot of questions – why is this the case? Is the market missing something? (which is often rare)

risk_9
Risk

Buying high yield reits mean that you are taking on higher risk and you need to be comfortable with it. If you believe a reit will not be bankrupt then you are wrong. We have seen several of them went down in the last 15 years or so,

In my opinion, receiving 5% year in year out and be able to sleep soundly every night is also a good thing.

So, can we buy Reits on the cheap? possible by nature of the stock market irrational behaviours at times … hence, watch out for those opportunities but do your homework and get ready to strike when the timing (i.e. the price) is right.

Hope you enjoy this blog issue for this week.

Take care.

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