She means Ascott, Ascendas and most importantly the current K-Reit subscription.
Based on history, it is worst off and based on current situation, it is entering into transactions which is less than favourable to the minority shareholders.
She is writing that so long as the interests of unitholders and the managers are not aligned, minority shareholders are to suffer which is in the case of K-Reits, sponsor try to offload not so attractive assets to the Reit.
The Straits Times
Dec 7, 2011
Credit crunch worries dogging S'pore Reits
Index falls 13.2% over euro crisis; Moody's sees risks amid stable outlook
By Goh Eng Yeow
DEBT worries are emerging over some high-flying Singapore real estate investment trusts (Reits) which have borrowed heavily at rock-bottom interest rates to add properties to their portfolios.
These Reits have gone on a borrowing spree to make acquisitions offering high rental income, which in turn translates to higher payouts to unit holders.
But debt is now a dirty word in the wake of the growing credit crunch in Europe, which is forcing European banks - a major source of funds for regional borrowers - to scale back on their lending.
These worries have reverberated among investors in Reits.
Since Aug 1, the FTSE ST Reit Index has fallen by 13.2 per cent.
But some Reits have suffered much steeper falls. Suntec Reit has plunged 25.1 per cent, K-Reit has nose-dived 28.5 per cent and Ascott Residence Reit has slumped 16 per cent.
Flagging its concerns recently, credit rating agency Moody's said that while it has a 'stable outlook' for Singapore Reits, the risks are apparent.
'A slowdown in Singapore's GDP growth, coupled with a large supply of new properties coming on-stream, should dampen rental growth, while debt-funded acquisitions have led to increased leverage for several S-Reits,' it noted in a report last week.
Deutsche Bank analysts Elaine Khoo and Gregory Lui noted in a report on Monday that while liquidity is still available in the Singapore dollar bond markets, the spreads have started to trend up.
'Fixed income investors are increasingly focusing on absolute yields, unlike bank financing, which is based purely on credit assessment,' they added.
The yield is also being driven up by competition which S-Reits are facing from Hong Kong giant conglomerates such as Cheung Kong and Wharf that have turned to Singapore to raise funds.
Still, some analysts are confident S-Reits will ride out any credit crunch triggered by the euro zone debt crisis far better than in the global financial crisis three years ago when they were hammered.
'When markets turned the corner in August, the more volatile names such as office and hospitality Reits saw their stock prices falling sharply, with some falling up to 30 per cent on fears of revisiting the sub-prime days,' said Credit Suisse analyst Yvonne Voon in a report last week.
'However, we believe this time, it is going to be different, as we do not expect S-Reits to revisit sub-prime troughs, where some traded down to 0.2 times price-to-book, due to their stronger balance sheet and a generally better economic outlook,' she added.
Separately, CIMB analysts Janice Ding and Tan Siew Ling argued in their analysis of S-Reits debt that the sector is in a much stronger capital position now than it was in 2008.
'After the global financial crisis, S-Reits have drawn on the lessons learnt to take advantage of the low interest rates to lengthen their debt maturities. Most of them do not have major refinancing needs until 2013,' they added.
Short-term debt - the scourge which took S-Reits to their knees three years ago, is only 8 per cent of total debt, down from 38 per cent in June 2008.
They said the biggest threat facing S-Reits is a drop in valuation of their assets which may, in turn, cause their debt-to-asset ratio to soar.
'We stress-test the asset leverage of 15 S-Reits and identify Ascott Residence Trust, Mapletree Logistics Trust, K-Reit and Suntec Reit as the most vulnerable to potential falls in asset value.'
But UBS analysts Michael Lim and Adrian Chua noted that at current price levels, S-Reits offer an attractive yield of 7.1 per cent.
'We expect S-Reits dividend per unit's growth at 1.2 per cent per annum with retail and hospitality Reits leading the growth at 4.4 per cent and 2.4 per cent respectively,' they added.
engyeow@sph.com.sg
for the longest time, i could not figure out the business model of reits. i've come across the analysis of many reit investors, on this forum and on their personal websites, and it baffles me why reits are so popular.
thankfully, things have gotten clearer after reading all the posts here. there are four things i've learned that i do not like: 1) properties sold to a reit is often at/above valuation, 2) managers tend to gear reits as high as possible, 3) majority of cash-flow is used to service dividends, not debt, 4) cash calls, whether for acquisition or for strengthening balance sheets.
i have been looking at infrastructure trusts and shipping trusts. there appears to be little difference to me between these trusts, except for their type of asset. and my conclusion is that reits turned out to be more popular -- due to their stable/improving unit prices -- mainly because real estate valuations (in singapore) have so far been stable/improving over the last decade. if real estate valuations were to plunge as much as shipping vessels in the last 2 years, wouldn't reits be in the same predicament as rickmers (if rickmers is unable to renew its contracts at the rates it is currently contracted, it is finished)? probably not as bad since real estate tend to have lower depreciation and much longer tenures.
an investment trust business model only works (pays you dividends, overall capital appreciation) when said asset's market is stable/improving. there is little long-term business sense, which therefore exposes long-term investors to higher risk, compared to a plain vanilla property holding company (sph, bonvest?).
my biggest bugbear of reits is their huge debt. i don't like debt on my personal balance sheet and i certainly don't like to leverage my investments. but despite my dislike of reits, i will still go for them at a comfortable price. maybe say, 0.2 - 0.3 p/b?
karl,
debt in a low interest environment works to your advantage but i am also one who doesn't like it.
in an ideal world what determines a good reit from a bad one is the same as one that determines whether a good business trust from a bad one or for the matter normal companies: sound management. i guess it always boils down to this.
there is no diff to me between reits and business trust. business trust gets all the bad rep because the reits havent faced a ship supply problem yet. its the black swan event
at the end of the day its still sound management
see
blog
for some readers response to recent BT articles on the Reit issue.
My 1c Gibberish
Which instruments provide high yields, predictable income and tax free returns? Dividend in reits are predictable unless the REIT faces cash flow problems, but if we stick to fundamentals in ensuring strong balance sheet, income statement and cash flow statements..hard to go Wrong with reits..?
http://personalfinancemaster-guru.blogspot.com/