Case study of failed reit

[Stocker]

How many companies still want to be in business but pay back their debt ? Even banks also in debt , they also refinance their debt , issue new bonds to cover matured bonds. Leverage is an double edge sword, as long as it is not high and low in dividend cover , it is definitely ok. How many companies don't have borrowings ? Good management know how to take advantage of the leverage to expand its business .
So far I only vested in Starhill Global because of their conservative acquisitions and borrowings strategies.

[felixleong]

I think well managed debt can help add a lot to shareholder's value
imagine buying a reit without debt, its like buying a house using 100% cash down

[Drizzt]

i agree with felix there. in the end REITs and Business Trust the greatest edge are having managers that are great capital allocators.

it i s a necessary competency:

1) the ability to look at the environment to spot opportunities, inefficiencies
2) the ability to secure attractive financing
3) the ability to consistently think how to generate the most value
4) move past just dividend payment and AUM but think about what are the best way to bring value
5) always manage the risk, whether its currency, interest, insurance, portfolio mix, refinancing

the rest is just stuff in the shell.

[Temperament]

Thank you buddies,

For your sharing, I think it really opened up a lot of perspectives from the "mountain tortoise" in me. I think I will look at reits very differently now, I still think its still a cool investment, but all the nagging questions about loans, sponsor, gearing rate, creditors, land lease make more sense now, I will validate it more comprehensively now, I hope. Thank you !

Don't worry about the "mountain tortoise". No matter how much i learn about the Stock Markets, i still feel the "mountain tortoise" inside me. If i don't feel it anymore, i better stop investing liu. See liu! Dementia liu? ( Pray that i may escape if GOD is willing. Amen)

By the way, is it true that non-accredited Reits are only allowed to gear up to 40% of Assets, while accredited REITS up to 60%. If it's true, then Mr. Market already tell you something. We should invest with our eyes wide open, shouldn't we?
So all the recent REIT IPOs, didn't the MR. Market also told us something before and after the IPOs? Like SPH REIT, OUE REIT and Soilbuild REIT......etc... But of course MR. Market may tell us a different stories about each of them in future.
Who knows?

[freedom]

i agree with felix there. in the end REITs and Business Trust the greatest edge are having managers that are great capital allocators.

it i s a necessary competency:

1) the ability to look at the environment to spot opportunities, inefficiencies
2) the ability to secure attractive financing
3) the ability to consistently think how to generate the most value
4) move past just dividend payment and AUM but think about what are the best way to bring value
5) always manage the risk, whether its currency, interest, insurance, portfolio mix, refinancing

the rest is just stuff in the shell.

everything else being equal, being a company, has the flexibility to cut dividends and repay the debt, that's the real capital management. not keeping rolling over the debt or incurring more debt, praying that every refinance will be successful.

REIT inherently is a bad capital structure everything else being equal. It's unbalanced by distributing 90% of income required by regulations to be tax efficient, but not being ensured to be able to refinance in the time of difficulties by regulations.

[felixleong]

generally when you buy a property or buy a house for investment, usually you would take the cash flow and use it to slowly repay your debt.

But when investors purchase reits, its never about paying down debt
reits is all about growing net asset value and taking on more debt to grow DPU

as such reits is actually an asset class that is a lot riskier than what most common investors perceived

that's why banks will glady lend you $$ for 30 years to buy a house, but they will never lend to reits for that long i guess ^^

[Temperament]

"But when investors purchase reits, its never about paying down debt
reits is all about growing net asset value and taking on more debt to grow DPU"
Unquote:
So it should always be about whether Reits can continue servicing their debts. Therefore an accredited and non-accredited Reit makes a lot of difference when interest rate trends up. If banks are not willing to lend, maybe public investors are still willing to subscribe to rights issue. i did in 2008 or 2009. They are accredited Reits of course, don't they?

[Stocker]

Just wonder is there a reit with no borrowing ?

[Temperament]

Just wonder is there a reit with no borrowing ?

Got! Start your own REIT if you have lots & lots of your own capital. But then how come you have lots of your own capital in the first place. Of course it must be from "OPM" lah. LEE KA SHING and other Billionaires come into mind.

[cfa]

If all companies don't borrow or pay down their borrowing , there will be no more bank around.
There are many banks competing for biz, as long as the assets are good, no need to worry about refinancing.
Many banks will be in the queue to offer competitive rate to fight for the loan biz, unless the reit is in negative equity situation.