^^ reits cannot hold for long term one. Due to leasehold expiry, div payments and interest expenses, portfolio value will drop over time. The counterbalancing factor is property price appreciation (mkt price + AEI). Now it is a plus factor. When property prices drop, will add to the speed of depreciation.
That's why REITs must acquire assets, if they stop, they start dying.
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I beg to differ slightly. For those holding first reit since inception, they would have seen the stock value and dividends more than double by now (~8 years). Even without aggressive acquisition, the depreciation is mitigated by escalating rentals over long leasehold periods.
S-reits have been in quite a special low interest environment in history.. Once this era ends, we may see a lot of changes in the market. The discerning will survive while the herd may get a big shock.
(28-09-2014, 08:10 AM)thor666 Wrote: [ -> ]I beg to differ slightly. For those holding first reit since inception, they would have seen the stock value and dividends more than double by now (~8 years). Even without aggressive acquisition, the depreciation is mitigated by escalating rentals over long leasehold periods.
S-reits have been in quite a special low interest environment in history.. Once this era ends, we may see a lot of changes in the market. The discerning will survive while the herd may get a big shock.
then the rentals inflows is limited by the leasehold. If it is expired, no more rentals. your rental is your payback of your capital. Sort of.
early REits like CMT and AIT, made a lot of acqu in the early years coz no competition, can growth very fast. Now so many REITs competing for same assets in SG. Slower growth whereas assets still depreciating. Some need to go over to OZ to buy stuff. Industrials REITS more at risk than Retail REITs. Though I think SG is overmall in short-mid term.
When interest rates rises and rentals slow, shareholders will be asked for top-up for rights issues.
Thats a very important point brought out by Opmi and that is the depreciating leasehold of many of our properties in Singapore. Many of our properties here are not freehold and upon the end of lease, you have to top up to continue.
If REITS do not buy new properties, their property portfolio will age and the portfoilo valuation will suffer. Do note that for 99 year leases, the value falls dramatically once leases hit 50 years and below [ First 50 years decrease about 30-35%, Last 50 years decrease by 65-70%]. Many REITS with 99 yr properties do not face this problem yet as their properties have 65-75 yrs leases left. That is why while many ppl say we should buy REITS as they provide a steady stream of income, if we take a 30 yr timeframe; one can say the 5% dividend we get annually will sooner or later be recalled to raise capital or is our compromise to be diluted in the future in order for this REITS to maintain their loan covenants ratio.
As mentioned the other way is to buy new properties in order to maintain a young portfolio age; however given the high gearing many of our REITS are now in which are supported by valuers who ascribe rich valuations to their properties, I seriously doubt REITS can finance purchases through internal resources. The only ones capable are likely capitacommercial and SPH.
To add on, I do agree that the mall and industrial segments are poised to face a downturn due to overbuilding. However, office spaces rental market looks to stay strong. Residential market will take a hit too, especially the Condo and EC segment.
Someone already says, "Reit is a passed through investment. And it you are fortunate you may reap some growth".
I think now is not a good time to buy REITs in view of the upcoming interest rate increase next year.
A couple a weeks ago, REITs prices dropped a few percentages just on RUMORS about early interest rate rise, so I imagine there is more downside when it actually increases for real. If Singapore bond yield goes back to historical average, REITs might drop another 10% or more.
If you are worried about limited leases, you can look more into IREIT, which has only freehold properties in Germany.
Personally I am watching only, because I know little about German properties, and it just IPO'ed, which means lack of track record to analyze.
Someone wrote an analysis about it here if you are interested:
http://www.investinpassiveincome.com/ireit-global-ipo/
(29-09-2014, 07:53 AM)gzbkel Wrote: [ -> ]I think now is not a good time to buy REITs in view of the upcoming interest rate increase next year.
A couple a weeks ago, REITs prices dropped a few percentages just on RUMORS about early interest rate rise, so I imagine there is more downside when it actually increases for real. If Singapore bond yield goes back to historical average, REITs might drop another 10% or more.
If you are worried about limited leases, you can look more into IREIT, which has only freehold properties in Germany.
Personally I am watching only, because I know little about German properties, and it just IPO'ed, which means lack of track record to analyze.
Someone wrote an analysis about it here if you are interested: http://www.investinpassiveincome.com/ireit-global-ipo/
Had the interest rate issue factored into the share price already ?
^^ Personally I don't think so.
My guess is based on the following assumptions:
- The 10-year Singapore bond yield goes back to historical (pre-GFC) average of about 3.5%
- The REITs yield rise accordingly to maintain the same yield spread against 10 year bonds (No compression)
- REITs rental stays more or less the same
Of course any of these assumptions can be wrong.
I guess if the rise in SGS yield is slow enough such that growth in REITs earning can keep up, then we won't see a steep drop.
The fact is the weak share prices weeks ago didn't just affect reits, but many other industries also.
do u guys think that soilbuild reit is a good deal?
8% yield
gearing 30%
~50 year lease, not bad for industrial offices
however
weak sponsor
no track record