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What's my take on MIT and GLP?

Monday, October 11, 2010

A reader sent an email asking me what is my take on the IPOs of Mapletree Industrial Trust (MIT) and Global Logistic Properties (GLP).  My reply was:

"I don't have enough data on hand to make an informed commentary on these.  That's why I have kept quiet about these although I have friends who would like me to blog about them.

"However, IPOs are not usually available at a bargain, especially in these bullish times. So, generally, I would avoid IPOs.

"With MIT, the expected yield of 7.6% seems ok. I do not know what is the NAV per share. I know it is using some of the proceeds to pay down debts to bring its gearing level to 30% to 35%.  Exact figures, I do not have.

"With GLP, it is being offered at a 10% premium to NAV. It does not even have any income distribution guidance. So, we don't know what is the yield.  What would be its proforma gearing level?  Too many unknowns. I would avoid."




26 comments:

jason said...

MIT, the NAV is $0.86. http://masnet.mas.gov.sg/opera/sdrprosp.nsf/373871f66a4c8ea548256bcb001284c5/49BD60327F97F218482577AD000E954F/$File/Mapletree%20Industrial%20Trust%20Preliminary%20Prospectus%20(29%20September%202010).pdf
(prospectus for MIT, somehow it doesnt appear on the MAS OPERA site.)
Preferred choice. Offering $0.93

NAV for GLC is about $1.804.
Frankly i am not that keen on GLC as the gearing is pretty high - abt 45-47%.

AK71 said...

Hi Jason,

Thanks for the link. :)

So, MIT would be offered at a premium to NAV just like GLP. An 8% premium. Hmm.. I don't like buying REITs at a premium usually. Also, at a yield of 7.6% and gearing of 30 - 35%, I am not impressed. I think I would give it a miss just like GLP. ;)

Drizzt said...

think we have to look at the gearing post ipo.

i believe they are overpriced. but its a rather big issue. i will tikam 1 lot lol.

Drizzt
Investment Moats.com

Anonymous said...

Thanks for the insight. Makes sense. Premium sponsor or 靠山 seems sexy but at the end of the day, I am an investor seek good returns. Staying by the sidelines on this one.

SnOOpy88

AK71 said...

Hi Drizzt,

MIT's target gearing, post IPO, is 30% - 35%. As for GLP, I was told that the gearing is 70+% and post IPO, it seems that it would be lowered to 40+%. Too much noise now and that's another reason why I am staying away.

Of course, it does not mean that prices could not go higher upon IPO even though we think the issues are overpriced. So, good luck on your tikam. :)

AK71 said...

Hi SnOOpy88,

In another blog post, I exchanged some views with another reader, Chu Yeow, that people like to be associated with pedigree. However, we have to pay a premium for pedigree. It's natural. ;)

I try to make sure that the non-pedigrees I am vested in do not turn out to be hellhounds. ;-p

Drizzt said...

high gearing. always remember when reits were at 40% gearing. why oh why is the gearing limit still at 45%

AK71 said...

Hi Drizzt,

Signs of the time? A question for the powers that be to answer. ;)

We just have to do our due diligence and steer away from high risk as much as possible. :)

Drizzt said...

be swift where we need. hope can get one lot each for fun.

Drizzt
Investment Moats.com

Anonymous said...

Gearing alone doesn't determine how risky a REIT is. We must also pay heed to its debt maturity profile (ie when does it matures) and whether does the REIT/Trust have any plans to repay their debt on a timely matter. Generally REITs tend to roll over their debt so it is important that their debt maturity period is staggered instead of it being concentrated on a single date. Moreover, if the maturity date is more than 3 years away, a high gearing may not necessarily be more risky than a Trust with 30% gearing but debts due in a matter of weeks.

Business Trust wise, there is no gearing limits but Trust should use a portion of their cash-flow to amortize their loans. This will balance out their high gearings in the long run. I am quite wary of business trust whose gearings exceed 45% and yet make no plan to repay their debts...instead they just roll it over and over again. Quite scary haha !

Nick

AK71 said...

Hi Drizzt,

Yes, speed is of the essence. :)

Good luck to everyone who is taking part in GLP's IPO. Huat ah! :D

AK71 said...

Hi Nick,

I agree with you. This is one reason why I like K-REIT's swap agreement with Keppel Land:

2. K-REIT’s weighted average debt maturity profile will be extended to approximately 4 years. In addition, the portfolio’s average borrowing cost will also be reduced from 3.54% to approximately 3.05%.

K-REIT: Swap Agreement.

I also agree that amortising loans is the way to go and this is not just for business trusts. I believe that REITs should have amortising loans too. It might interest readers to know that Saizen REIT been replacing CMBS with such amortising loans.

It is published on page 16 of its annual report (FY ended 30 Jun 2010):

Saizen REIT Annual Report FY ended 30 June 2010

I just couldn't resist this. ;)

Anonymous said...

The inner voice says BUY coz this is a well backed IPO whose assets i have seen (the JTC factories portion). And prospectus says 7.6% - 8% yield (DPU/IPO price)

The practical & logical discussion here says : Hands Off. It is a premium over NAV. It has been a long time since I have this kind of cross roads. Sianz....

SnOOpy88

AK71 said...

Hi SnOOpy88,

The yield is more likely to be 7.6% since MIT's IPO would be priced at the top of its range.

Actually, there is no hard and fast rule that we should not buy a REIT that's trading above NAV. NAV is just one consideration, after all. ;)

Anonymous said...

Agree with you AK. I tossed over & think about it last night and decided to put a small bid for 5 lots of MIT. Lets hoped that I can get it.

Anyway - i sniffed something else maybe in the pipeline - Mapletree Commercial Trust

http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_589776.html

Holding on the known properties (that I have visited before) e.g Vivo City, Lynch HarbourFront, the PSA Building & Mapletree Business City (the current place called Comtech ?)

What other details on the table ? Dunno yet. Sure gonna be a premium item, but if yield is 7-9% range. It will look very acceptable leh.

Is visiting or knowing the REIT properties my requirement ? No, but good to know for that feel and touch. Can't do that for 1st, Saizen & LMT as they are beyond my easy reach.

Most of the listed counters one can't even get thru the gates of the factories/office building etc etc to have a look see. Or maybe I didn't know that public or retail investor days from these counters ?

Nice weekend everyone.

Huat ah.

SnOOpy88

AK71 said...

Hi SnOOpy88,

You have voiced something that is probably close to the hearts of many local investors. :)

Local investors have a preference for REITs with local properties. This is true.

It is probably also a reason why REITs with foreign properties suffer substantial discounts to NAV (although First REIT seems to be closing that discount in recent weeks).

Good luck with the IPO. Frankly, if you manage to get some MIT, I feel that you could make some nice gains with the current bullish sentiments in the market. ;)

Anonymous said...

Thanks AK

I am eyeing on Fortune REIT, as part of my country risk diversification.

Yes, HKD is depreciating against SGD, but this counter has also risen over time. More than to offset the FX loss.

Any inputs is appreciated.

SnOOpy88

AK71 said...

Hi SnOOpy88,

Not much I can say here apart from the fact that I generally avoid anything that's not denominated in S$. Like you said, we would have to keep an eye on currency rates too. One more thing to monitor.

There are so many REITs (denominated in S$) available for consideration that I don't see the need to consider Fortune REIT.

The Hong Kong economy is very open and similar to Singapore's. The difference is their greater exposure to the Chinese economy. Hence, Fortune REIT is likely to benefit from the rise of the Chinese consumers.

If you want exposure to Chinese consumers, you could consider CapitaRetail China. ;)

If you really like Fortune REIT for some reason, go ahead and get it. Don't be bothered by my quirks. :)

Anonymous said...

Ak

The FX risk and exposure is either presented raw (in the case of Fortune in HK$) or in the background (LMT / Saizen / 1st REIT / CapCM), which converts everything to S$ before presenting to you. At what exchange rate and buffer %, would be the issue. You still get exposed, whether you feel the pinch directly or indirectly.

Malaysian REITs offers a higher average yield of 7.38% vs S-Reits 6.466%. After factoring the 10% withholding tax and the more expensive brokerage, I decided that boleh-land's REITs are not worth the hassle.

Have a nice week ahead. ^-6

SnOOpy88

AK71 said...

Hi SnOOpy88,

Whenever we invest in counters with overseas exposure, we will be exposed to currency risks. It's plain economics. :)

However, that's not what I was talking about in my earlier comment. My concern is less elaborate.

A counter denominated in S$, we don't have to worry about what's the exchange rate that's being used when we buy or sell the units.

So, waiting for an ideal exchange rate before buying or selling is an additional thing to consider and that is what I want to avoid. I try to keep things simple. :)

It's probably just a quirk. ;p

Anonymous said...

Ah. Sorry for misunderstanding you earlier. ^0^

SnOOpy88

AK71 said...

Hi SnOOpy88,

Hey, no problem. It was probably my fault for not being clearer in writing my earlier comment. ;)

Anonymous said...

I didn't get my allotment. So be it and am not upset about it either.

Take the refund and redeploy for better returns.

Cheers

SnOOpy88

AK71 said...

Hi SnOOpy88,

That's the spirit. Always look on the bright side of life. :)

Anonymous said...

GLP drop quite bad today. Due to the News.

A Singapore newspaper reported on Wednesday GLP’s non-compete agreement with U.S. rival ProLogis (PLD.N) will expire in February, which may lead to stiffer competition for GLP in China.

TN

AK71 said...

Hi TN,

Thanks for the update. :)

Could that be a reason why GIC decided to list GLP? Stiffer competition ahead? Hmmm...

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