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.

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