ESR-REIT

[Shrivathsa]

I came across this REIT as it oddly stood out as a large holding in a large local mutual fund and of course, the headline estimated yield of 9% odd based on its closing price of 0.3 SGD on 17th November.

One of the things that I try and do is to find reasons to not buy a stock. For that, Valuebuddies is quite invaluable, as reading through the postings about the stock, it does give a good idea on what are the red flags and what can and should be swerved.

When I dug deeper into ESR Logos REIT (from its Cambridge days) what was fascinating was that it had a unit base of 512 million odd units and an IPO price of SGD 0.68 back in 2006.

Fast forward to today and its unit base is 7.7 Billion units, growth by 14 times and a price of SGD 0.3, roughly 44% decline in price.

Therre is a lot of rights issues to raise funds, so, one has to either pony up or get diluted.

Now, nothing wrong with fund raising to grow, per se as generally fund raising is supposed to deliver yield accretive income,. (It is amazing though that, very many times, it does not really seem to pay off as I have seen over the years so many so-called yield accretive acquisitions yield pain in the form of lease defaults, unknown risks etc.)

The collective result of all that is that Nett Income for Distribution grew from 7 million odd to 71 million, about slightly less than 10 times.

As other buddies have said, unlike other REITS which are stable dividend income yielding assets, this REIT is more of a dive in when it is irrationally low and exit when it is exuberantly high.

Hence, will be avoiding this, even though the headline yield of 9% does look very tempting.

[ghchua]

Hi Shrivathsa,

In general. industrial REITs with assets in Singapore tends to trade at a higher yield mainly because of their shorter land lease. Which means, part of the yield can be considered as "compensation" for decaying land leases as they approach expiry.

Therefore, to do a fair comparison, you must look at other industrial REITs with mostly assets in Singapore and consider whether 9%pa yield is enough to compensate you for the risk taken. Also, do remember that ESR Logos REIT is not really a blue chip REIT but rather a mid size one. So, your data points must also be those that are of a similar size, while giving it a risk premium if you want to compare with a blue chip industrial REIT.

Hope that the above helps a bit in your REIT hunting.

[weijian]

The collective result of all that is that Nett Income for Distribution grew from 7 million odd to 71 million, about slightly less than 10 times.

Mgt fees are paid based on a % of the revenue/distribution income. So no surprise who largely benefited from the increase in distribution income and/or unit size.