Saturday, February 25, 2012

The pros and cons of rights issue in Reits

Out of the 18 Reits, 13 chalked up positive IRRs, but some just barely; Seven managed to reward investors with IRRs of more than 10 per cent

By Teh Hooi Ling

Wednesday, Dec 07, 2011
The Business Times



To pump in more or not
Returns of Reits with rights subscription and without
Reits Year of IPO Internal Rate of Return (%)
Subscribe Don’t Subscribe
Ascott Residence Trust 2006 13.4 17.2
Ascendas Reit 2002 16.3 17.2
First Reit 2006 21.7 14.4
CapitaMall Trust 2002 16.6 14.2
ParkwayLife Reit 2007 - 13.5
Frasers Centrepoint Trust 2006 - 12.7
Mapletree Logistics Trust 2005 11.9 11.1
Suntec Reit 2004 - 8.7
CapitaRetail China Trust 2006 - 6.7
Fortune Reit (HK$) 2003 6.8 3.9
CapitaCommercial Trust 2004 7.6 2.7
K-Reit Asia 2006 -1.2 2.7
Cambridge Industrial Trust 2006 1.4 1.1
Starhill Global Reit 2005 3.7 -3.3
LippoMalls Indo Retail Trust 2007 -9.1 -13.4
Frasers Commercial Trust 2006 -10.4 -24.8
AIMS AMP Cap Ind Reit 2007 -19.4 -30.4
Saizen Reit 2007 -29.6 -36.5
StarHub 2005 - 29.7
SingTel starting 2002 - 12.7
SPH starting 2002 - 4.9

(Attibution: Table reconstructed by Investor Lightyear, data source from BT.)

Key article highlights:
  • The cashflows of Reits with four years of listing history were tabled and compared against StarHub, SingTel and SPH's cashflows since 2002.
  • The Internal Rate of Return (IRR) was computed for the 18 Reits and three counters based on two assumptions - investors either subscribed or sold their rights entitlement.
  • 13 out of the 18 Reits had positive IRRs and seven rewarded investors with >10% IRRs. Ascott Residence and Ascendas Reit came up tops. First Reit, CapitaMall Trust, ParkwayLife Reit, Fraser Centrepoint and Mapletree Logistics made up the remaining five respectively. 
  • Investors who took up their rights entitlement were better off with improved IRRs. Interesting, in the case of Ascott Residence, Ascendas Reit and K-Reit, unitholders achieved an even higher positive IRR by selling their rights entitlement.
  • StarHub beat all the Reits with an IRR of 29.7% and had no cash calls since its IPO in 2005. SingTel did farely well with 12.7% whereas SPH only managed 4.9%.

My two cents worth - it appears subscribing to rights issues of Reits does not totally disadvantaged investors. Rights issues offer existing unitholders an opportunity to purchase additional new units typically at a discounted price. This may be appealing to certain investors, especially those investing for passive income.

Saturday, February 18, 2012

Bonus$aver Account - Standard Chartered Bank

Introducing Bonus$aver – the only current account that offers an amazing 1.88% p.a. from your first dollar up to a balance of S$25,000, with no monthly fee and no lock-in period

Stanchart launches new current account product
Wednesday, Feb 15, 2012
The Business Times

(Attribution: Photo taken by Investor Lightyear)

I applaud Standard Chartered Bank's constant product innovation for their retail banking business. Their latest Bonus$aver current account, together with its accompanying Bonus$aver credit and/or debit card(s), further boosts both their Deposits and Cards product suite.

So how does the new account work?
  • 1.88% p.a. interest is awarded for the first S$25,000 with a monthly minimum S$500 retail spend on the card(s) linked to the account.
  • The 1.88% p.a. interest comprises (1) prevailing interest and (2) bonus interest rates applied on the average daily balance.
  • Prevailing interest rates are 0.10% p.a. for deposits <S$200,000 and 0.20% p.a. for deposits S$200,000.
  • Prevailing interest rates are daily computed and credited monthly.
  • Bonus interest is computed at calendar month end and credited on the 1st working day of the following calendar month.
  • Any average daily balance in excess of the S$25,000 cap will only earn interest based on the prevailing interest rates.
  • The linked card(s) do not earn any 360° Reward Points and CashBack.

As part of the product launch special, Stanchart will credit S$100 CashBack to the linked credit card when customers open the account with a S$50,000 deposit.

For full promotion and product details, please check out Stanchart's website.

Saturday, February 11, 2012

The Reit Myth Busted

Reits are good income-yielding instruments is but a myth; The thing is, whatever they pay out in dividends, they will take back - all and more - a few years later in the form of rights issues

By Teh Hooi Ling, Senior Correspondent

Monday, Nov 28, 2011
The Business Times

Myth busted
Cash distributions versus cash calls of Reits and business trusts
Reits IPO Date Initial Capital Outlay ($) Subsequent Cash Calls ($) Total Capital Outlay ($) Dividends Received ($) Market Value of Holdings ($) Return on Capital (%)
CapitaCommercial Trust May 11, 2004 0 -8,155 -8,155 6,687 23,100 265.3
CapitaMall Trust Jul 17, 2002 -960 -1,549 -2,509 1,264 4,437 127.2
Frasers Centrepoint Trust Jul 5, 2006 -1,030 0 -1,030 322 1,450 72.0
Ascendas Reit Nov 19, 2002 -880 -589 -1,469 1,150 1,352 70.3
Suntec Reit Dec 9, 2004 -1,000 0 -1,000 518 1,130 64.8
First Reit Dec 11, 2006 -710 -625 -1,335 410 1,755 62.2
ParkwayLife Reit Aug 23, 2007 -1,280 0 -1,280 281 1,795 62.2
Ascott Residence Trust Mar 31, 2006 -6,800 -3,888 -10,688 4,063 12,870 58.4
Frasers Commercial Trust Mar 30, 2006 0 -815 -815 398 846 52.6
Mapletree Logistics Trust Jul 28, 2005 -680 -662 -1,342 484 1,550 51.6
Fortune Reit (HK$) Aug 12, 2003 -4,750 -3,142 -7,892 3,265 7,744 39.5
CapitaRetail China Trust Dec 8, 2006 -1,130 0 -1,130 351 1,150 32.8
Cache Logistics Trust Apr 12, 2010 -880 0 -880 97 950 19.0
Mapletree Industrial Trust Oct 21, 2010 -930 0 -930 8 1,060 14.8
Starhill Global Reit Sep 20, 2005 -980 -350 -1,330 369 1,150 14.2
K-Reit Asia Apr 28, 2006 0 -8,399 -8,399 1,110 8,369 12.9
Cambridge Industrial Trust Jul 25, 2006 -680 -82 -762 205 587 3.9
Mapletree Commercial Trust Apr 27, 2011 -880 0 -880 19 845 -1.8
Sabana Reit Nov 26, 2010 -1,050 0 -1,050 61 870 -11.3
LippoMalls Indo Retail Trust Nov 19, 2007 -800 -310 -1,110 173 730 -18.6
AIMS AMP Cap Ind Reit na 0 -481 -481 301 0 -37.4
Saizen Reit Nov 9, 2007 -1,000 -82 -1,082 71 267 -68.8
Notes: Assume 1,000 units were purchased at IPO, except for Ascott and CapitaCommercial where 10,000 units were purchased.
(Attribution: Table reconstructed by Investor Lightyear, data source from BT.)

Key article highlights:
  • Reits are not the perfect income-yielding investment. They took back more from investors through rights issues than its dividends paid.
  • 17 Reits with listing history  four years on the Singapore Exchange (shaded in grey) were reviewed.
  • Frasers Centrepoint Trust, Parkway Life Reit and CapitaRetail China made no cash calls.
  • Suntec Reit, instead of rights issues, did private placements of discounted new units that diluted existing unitholders' stake.
  • The remaining 13 had rights issues, and some made several cash calls.
  • Reit managers and unitholders' interests may be misaligned as the former is motivated to earn more management fees by expanding the portfolio size.
  • Nonetheless, most Reits achieved positive total returns for investors through dividends paid and capital appreciation.

My take? Reits should not be cast aside. I believe buying the right Reit at the right price and time could be one rewarding strategy for investors.