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.

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.

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.