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REITs and rights issues: A Singaporean tale.

Monday, November 28, 2011

Some readers told me I should let my hair down and try blogging with a more local flavour. Should I try to inject some local flavour into my blog? Hmmm...

REITs have been getting a lot of attention lately and, generally, I think it is a good thing. However, I would like to see more balanced write ups which would do the subject justice.

Recently, another article in the newspapers was brought to my attention. The article is by Teh Hooi Leng, titled "The REIT myth busted." With a title like this, despite any claims to the contrary, the immediate impression given is a negative one.

At least two bloggers I know of have referred to the article and one highlighted that "Whatever Reits pay out in dividends, they will take back a few years later in the form of rights issues". A statement like this is not just simple, it is simplistic.

Indeed, a reader commented on the same newspaper article and expressed his displeasure. I replied to his comment in my usual fashion. See it here.

Now, let me see if I could inject some local flavour into this blog post with a somewhat simplistic analogy since being simplistic seems to be in vogue:

Once upon a time in Singapore, there was a father and son investment team. They invested in a condominium unit next to Bedok reservoir. Every year, the father would distribute 90% of the income from the rental collected from the condominium unit.

Ten years later, the father told the son that he wanted to invest in another condominium unit and asked the son if he would like to put down some capital for this new investment. The son did some calculations and realised that he would have had to "give back" all the money his father had distributed to him from the rental collected from the Bedok reservoir condominium unit over the last ten years!

"Wah, lao peh, how can liddat one?! You taking back all the money you gave me in the last ten years! You cheat my money izzit?", the son was indignant.

The father smiled indulgently at his son and explained that, with the proposed investment, he would be able to double the income distributed every year to him from rental collected from two condominium units instead of one but, of course, the son could choose not to be a part of the second investment. The son had a choice.

The father was not taking back whatever he had paid out to the son in the last ten years as the father didn't have the right to do so. The father was offering the son the right to either accept or refuse a part in the new investment.

Remember: When asked for money, ponder on the reason why. This is more important than the money involved. Looking at only the money involved is myopic.

With so many voices against REITs and their rights issues, it is easy to sing in a choir but to sing solo, that is much harder. OK, what do I know? I am just a retail investor.

Related posts:
1. REITs and rights issues: Dilutive or not?
2. Investing in REITs: A flawed strategy?



OT83 said...

Hi AK,

Nice post! I help you to add more local flavour to it.

"Dad, The condominium besides Bedok Reservoir is not good because it is haunted! There are so many people who jumped inside the Reservoir. Given such bad news, the purchase price will sure drop like mad! We better wait for better time to buy."

"No son, the best time to buy is when people are fearful. How you know when is the better time to buy? As long as you have a plan, you shouldn't be worry. You will have higher chance to get the asset cheaply. If the newspaper report the price of property is flying through the roofs, we shouldn't buy new property as you are just being the greater fool. In short, be greedy when others are fearful but be fearful when others are greedy."

lol :)

AK71 said...

Hi OT,

Hahaha, thanks for the embellishment. Bedok reservoir just came to mind when I was composing the blog post. It has no special meaning, I assure you. ;)

Anonymous said...


No matter what you say, there will be optmists as well as naysayers. If they think like the son, then they deserve the returns they get from whatever other investments they have.

I have been investing in dividend paying stocks like REITS and business trusts like Cityspring, MIIF, FSL and Rickmers. I have paid tuition fees for FSL and Rickmers and made money on the rest. But having said that, sometimes, opportunities come along for me to take a look at some of stocks that I have lost money before. I sold FSL at 38c. It dropped to 26c at the lowest. In fact I was comtemplating whether I should punt a little but decided otherwise. FSL rose up to 32c and all this happenned within the last 2 months.

You need a reason to buy a stock even if you want to punt. If you don't know the reason, then don't buy. Sounds simple enough but heck of a difficult to follow.


AK71 said...

Hi Skipper,

Understand our motivations and act accordingly. If we do not understand something, don't invest in it. Or if we think we understand something and do not like what we see, avoid it.

How hard is that? ;)

I try always to be pragmatic. I do not believe in being bullish or bearish as our minds tend to be clouded in extremes. This does not mean that I do not have such a failing in me. ;p

I try to invest based on current circumstances and it so happens that REITs are a good place for my money to be in now. :)

Generalising REITs in a manner which suggests that they take back all the income distributions through rights issues is just mind boggling. Hence, this blog post. :)

SnOOpy168 said...

This has a nice singlish flavor. Either way, investors should do their homework before investing in any class or types of products.

I too get my blast from those who favors quick gains from share price difference. Seriously, they are right and they are also wrong.

Right that it is a legal way of making the $$. Wrong that this is not what I wanted - as I have no time to watch the market nor am well versed nor schooled with TA/charts/hocus-pocus "bao tan" trading methods.

I wanted to buy property, collect rent and expect both rent & property value to appreciate over time. So that I can happily retire knowing that there is $ in my bank account monthly. Until I have sufficient $ for the downpayment, REITs makes sense. Except that I can't invite friends over for a BBQ at my share of the properties. heheheh

Anonymous said...

Hi AK71,
Thanks for
"Everything should be made as simple as possible, but not simpler. ...

Albert Einstein.

This is one of my favourite for i have low to average IQ only.

AK71 said...

Hi SnOOpy168,

Hahaha... I am glad you approve. :)

Yes, investors should do their due diligence and not cry father, cry mother when things turn out differently from what they expected. ;p

AK71 said...

Hi Temperament,

Explanations could always become simpler but one liners often would not do much good and could confuse more than enlighten. ;)

financialray said...

Just for laugh.

The father should tell the son:

"Look son, I am imparting to you the 3 master steps to financial freedom. This is step 2 of my lesson for you. When I am no longer around, you live in one condo and rent out the other condo for your living expenses. That is step 3 for you."

Alternatively, the father can learn from Zhu Ge Liang and give the son a bag/letter with a similar message for him to open and read on his demise.

Before I forget, the father better buy mortgage insurance, the best type of term insurance win-win.

AK71 said...

Hi financialray,

Hahaha.. Thanks for extending the story. However, that would be beyond the scope of my blog post. ;p

What is still common is how ignorance could cause the son to lose out on owning more assets and his corresponding ability to secure more income. :)

Hwang said...

Here's my take on "the father take back whatever he gave out for the past 10 years to buy another one."

It means that with the same capital that i put in 10 years ago, i now own 2 properties instead of 1.

Better than giving bankers the money in return for a 0.05% interest.

AK71 said...

Hi Hwang,

Yes, you have it cracked.

I am puzzled why people are so puzzled by REITs and their rights issues. ;p

Singapore Man of Leisure said...

Hello AK,

I feel so much better reading your post! My own "satire" yesterday not so successful...

Some people tend to believe whatever is said in the media.

If I want to invest in REITs, I would ask a person who have been investing in REITs for the past 10 years (it's not a new investment vehicle. Got 10 years track record not enough?)

I wonder how many readers ask the 2 journalists have they ever bought or sold a REIT?

If answer no - hello!?

If answer yes - you listen to someone who invested in an instrument for 10 years and still admit they have no clue?

I guess the lenses we wear may depend whether we've made or lost money in REITs. Some who "lost" just need someone to "blame".

Disclaimer: Vested and still making money so far. Pure dumb luck!

SnOOpy168 said...

Selfishly, it has always been an investor's target to take back more than he put in. AND they want to choose whether they want in or out. Not be "bossed around" by the REIT, like little kid asking for more pocket $$$.

I had read that article and felt almost mislead by the numbers on the chart. Did the chart meant to say that 1 buy 1 lot during IPO, participated in every rights issue, take every dime of dividend - I still ended up poorer, as in lower overall holding value (worse off) ?

Except that when the equations and rationale gets beyond the "buy low & sell high" thinking, all sorts of nay-sayers pops up.

Sure, I am worried to as to what might bring down the rental occupancy of the Industrial property as a whole. But equally, will the punters also have other worries that they face in the evening watching CNA or Bloomberg ?

While cash call, means more units on hand at the end of the day and a lower average cost per unit. This i like, except that I wished that they timed it when I have little spare change in the pocket. Siong lor. I don't earn a lot and as the holdings builds, the size of the rights also builds. Ouch, if I don't have the deep pockets.

There may come a time where I am retired, not working and will depend on these dividend income for a living. Perhaps, wise sifu AK will have new blog "managing your dividend income" when you are 60+.

Looking forward to that day. It may be sooner than you think. ^-^

FoodieFC said...

Nice post!certainty showed ur creativity!

AK71 said...


I started investing in REITs only before the last financial crisis. Talk about bad timing.

I suffered losses but fought back by learning more about REITs. Realised the value they presented in the depths of the last crisis, bought more and returned in the black.

Unfortunately, the newspapers probably have a wider reach than my blog and seeing how some bloggers are brandishing Ms. Teh's article in their blogs as testament to the evil of REITs and rights issues, I am probably in the minority here. ;p

Well, I do what I can. :)

Anonymous said...

Hi AK71,
Sorry, i mean your story of father and son investment team (aka about REIT investment) can not make much more simpler..... Even a low/average IQ like me can understand. Good post about REIT Investments. In fact fanstatic.

"Everything should be made as simple as possible, but not simpler. ..."

Albert Einstein.

That's why he is a genius.

AK71 said...

Hi SnOOpy168,

Yes, we would like to have our cake and eat it too. Who doesn't? Well, this is the real world. There are trade offs. :)

I take issue with the table in the article too. It was presented in a way to make REITs look bad. If it could almost mislead a seasoned investor like you, imagine what damage it could have done to someone who is less informed.

REITs are great instruments for anyone who is investing for income. Like with any instrument, we just have to learn how to benefit as much as we can from it. For sure, they are relevant tools for the retiring type. ;)

Finally, I am wise enough to know that I am not wise enough to be a sifu. ;p

AK71 said...

Hi FoodieFC,

Haha.. I think the last time I wrote a narrative (story telling) composition was for the "O" levels. A bit rusty but I am glad that I still have it in me. ;p

AK71 said...

Hi Temperament,

Oh, I see. Thank you for taking the trouble to explain to me. Understood.

I am glad you enjoyed the blog post. This makes me glad. :)

Singapore Man of Leisure said...

Hello AK,

Nothing beats baptism by fire!

Your're the man!

It's easier to be the willow than the oak.

Love your story! The father is so nice to offer the son first right of refusal - in some circles, its called nepotism...

P.S. Thanks for having an open mind. Some of my satire posts (eg, Are you an Opinion leader or Follower) can be "twisted" to be "against" you. But I guess you knew better!


AK71 said...


When I see injustice and, in this case, misinformation, I just feel that someone ought to do something about it.

Actually, being lazy, I would have been happier if someone else like LP did the job. Since that did not materialise (as LP was busy putting up pictures of half eaten food in his blog), I took it upon myself to do it. Thank goodness, it didn't turn out badly. ;p

Hey, keep your story telling going. I enjoy a good laugh and in some cases, I end up laughing at myself too. :)

la papillion said...


HEY! I saw that comment! Grrr....

AK71 said...

Hi LP,

AK is innocent and only tells the truth. AK is, however, remorseful for angering LP. Bad AK! ;p

Holysmokes said...

Here's my post in HWZ forums on this matter.

I've done up a dividend table for CMT. This is based on the dividend history stated in CMT web page. I'm going to assume the DPUs stated are not adjusted for rights issue since it's not stated on the page. The chart presented depends on this assumption.

I've grouped the dividends annually by payment date. If an investor had bought 1000 CMT shares from IPO, and never subscribe to rights issues, the min. he/she collected is $63.50 in 2007.

The BT article wrote for the example of Ms Retiree subscribing to CMT rights all the way, she gets "a net outflow of $284 per lot".

However, it fails to say that if she simply does nothing, she would have collected $851.80 in cash so far. This doesn't include proceeds from selling off her nil-paid rights. Her capital put in is $960. She has almost doubled her retirement money over 10 years!

Hence, I conclude that the BT article creates a completely wrong impression. It is not a balanced presentation.

AK71 said...

Hi Holysmokes,

Coincidentally, I commented in another financial blog on how assumptions made in the first instance would affect the outcome of calculations. Putting it in another way, bias could be built into calculations due to initial assumptions.

When writing for public consumption, I believe we have to take extra care to present a balanced argument so as not to misinform or, worse, mislead.

Ms. Teh's article, appearing in The Business Times, probably has far wider reach than any local finance blog or forum. I can only hope that more would step forward to help correct the misinformation.

Thank you for a substantial first comment in my blog and I look forward to many more to come. :)

Marco said...

Received dividend from Sabana Reits; and this is my first dividend income from S-Reits. Yes, no tax withholding for foreigner.

AK71 said...

Hi Marco,

Thanks for sharing this. I remember a reader from Hong Kong telling me that this is a reason for him to invest in S-REITs too. :)

Ray said...

Hi AK,

Your story mentioned " with the proposed investment, he would be able to double the income distributed every year to him from rental collected from two condominium units instead of one".

But how true is this for REITs?
When issue rights to gain more money for new properties, does that always translate to higher DPU? NAV increases, but do the unit holders really get to share the benefits? This, I think is the key thing that many investors are cynical about.

SnOOpy168 said...


You said

"I started investing in REITs only before the last financial crisis. Talk about bad timing.

I suffered losses......"

Maybe I am too new to REITs to know about the past. Can you share more what did happened ?

Was it a massive sell down by everyone for every counter but the NAV was still intact ? or something. Curious about the past. 2012 coming....

AK71 said...

Hi Ray,

I did warn that this would be a "simplistic" analogy. ;p

In an earlier blog post, I said that "not all rights issues are distribution yield accretive. Each rights issue should be assessed based on the circumstances leading to it and its pro forma numbers." Not so simple, therefore. ;)

See REITs and rights issues: Dilutive or not?

AK71 said...

Hi SnOOpy168,

I did blog about my experience before and it is not something I want to relive. :(

See High yields: Successes, failures and the in betweens.

Ray said...

Hi AK,

You lost quite a bit in Cityspring and other bad REITs but from what I know your passive income portfolio is still very impressive, at least by my standards. Can you share alittle on how you overcome losses and how you manage to grow your portfolio? I remember you mentioned having a day job, spend wisely, etc but was there some events that gave your capital a huge boost along the way? Cheers.

AK71 said...

Hi Ray,

I was taking a long time typing a reply to you and I decided to do a blog post titled "How did AK71 overcome his losses and grow his portfolio?" instead. ;)

Ray said...

Hi AK.

Thanks alot for sharing your precious experience with us :)

Not sure if you would be so kind to also disclose what are the stocks in your current SG portfolio :)


AK71 said...

Hi Ray,

In the course of blogging, any regular reader would know what I have in my portfolio. ;)

More significantly sized investments at this moment are:

1. AIMS AMP Capital Industrial REIT
2. Sabana REIT
4. First REIT
5. Saizen REIT
6. SPH

I also have smaller investments in a few other REITs and stocks such as Cache Logistics Trust and ST Engineering.

Ray said...

Hi AK,

Although I think I have read all your blog posts but my pathetic memory doesn't serve me very well :)

Nice, I got 4 / 6 of what you have in your portfolio :)
If only I will be 4 / 6 as successful as you, I'll be contented :D


AK71 said...

Hi Ray,

Yikes, don't say that. Each of us have our own circumstances.

Assuming you are investing for income, if you really want something to measure against, measure against your annual income from employment.

If you want to be financially free, your annual passive income should equal your annual income from employment, for example.

This is really arbitrary since you could be quite comfortable with a passive income half of your current earned income when you retire. :)

Calvin said...

Hi AK 71,

Nice post and good explaination of the rights issue and acquisitions in very simple terms. I think even the layman can understand what you are saying.

I have wrote a post in response to this Business Times article the REIT Myth Busted as I thought it was overly skewed.


AK71 said...

Hi Calvin,

I do not know why but your comments tend to end up in my SPAM folder. No worries. I always check my SPAM folder. Rescued this nice comment. :)

Yes, Ms. Teh's article in The Business Times has come under fire. Of course, she has her supporters too which is evident in some blogs.

I am glad you found my blog post easy to understand. I did warn that it would be "simplistic". Hahaha.. I wonder if Ms. Teh might have read it too. Would be a pleasant surprise if she did. ;p

Thanks for the link. ;)

Paul said...

It's unfortunate that a respected writer like Ms Teh would write such a unbalanced article. At the very least, she should have made her assumptions clearer.

Of cos her article is bound to be a target - from both detractors and supporters of REITs alike.

Those anti-REIT would feel vindicated that their view has gained national and mainstream recognition.

Those pro-REIT would decry her simplistic and poorly conceived article as example of one with an axe to grind.

While I do have a sizeable portion of my portfolio in REIT, I do not consider myself to be members of either camps.

Not all REITs are craps, just as not all REITs are a god-send.

For those in the anti-REIT camps, I would say: If it makes you feel uncomfortable in the payment and incentive structure, the stage-manager relationship, the portfolio or anything else, just stay away. And put yr money somewhere else.

For those in the pro-REIT camps, I would say: Continue to evaluate yr REIT constantly. Never assume that just because it was good for you before, it will continue to be good for you.

Frankly I'm surprised about the magnitude of the anti-REIT movement. Maybe I should start an ant-Biz Trust movement or an anti-Shipping Trust movement myself :) If REIT is as bad as Ms Teh says, then Biz Trust and Shipping Trust are junk bonds IMO.

Calvin said...

Hi AK,

Thanks for "rescuing my post" from SPAM lol. I don't have a spam filter so I have to go through all my comments.

Sometimes when I write my posts, I wonder if my readers can understand what I write? Being a finance graduate and investment banking analyst for many years, many of the financial terms come naturally to me. So, I have to make a conscious effort to write in simplified language, although I still get carried away with technical language at times. So it's refreshing to read the same explanations, but written for everybody to understand ^_^

No problem, just thought the link would a useful read as well.


AK71 said...

Hi Paul,

I can always depend on you for a dash of sensibility. Thank you for the well written comment. :)

AK71 said...

Hi Calvin,

The SPAM filter is an auto feature provided by You don't use So, I guess you don't have to deal with it. :)

I am a lay person. Not finance trained. Well, I did do a couple of finance modules in my diploma course in business years ago but I don't think they count for much. ;p

Anonymous said...

Lol....except in the case of most sponsored reits, the 'father-sponsor' owns the properties and sells it to the 'father-son' REITS making a profit out of it.

Caveat Emptor.


AK71 said...

Hi Kai,

The father is, in this case, the REIT manager, not the sponsor. The father is buying a condominium unit from a developer, the "sponsor", who would of course sell for a profit.

So, the integrity of my analogy is not in question although it is rather simplistic.

Why simplistic? For one, the REIT manager in this case did not charge any acquisition or management fees. ;p

Anonymous said...

1. Mathematically, right exercise is a zero-sum gain. In fact, you have to incur commission for selling off nil-paid rights if you decide not to subscribe to the rights. Hence, your analogy is not absolutely accurate.

The son has to forfeit abit of money even if he does not take up the new property.

The main problem set by the article - is the frequent RIGHTS exercise a problem?

2. My view: The article is not entirely misleading in the sense it is really not beneficiary to the investors for vested stocks to undergo rights exercise on a frequent basis.

a. If you subscribe, you need to spare more cash.
b. If you don't subscribe, you need to splurge more on commission to sell off the rights. One year one right exercise, $25 comm. Ten year $250. That's about 2.7% if you talking about a $9000 capital cost investment.


Anonymous said...

Mathematically, a fairer comparison would be to take a REIT offering similar yield than that of a blue chip.

Ignoring capital gain and assuming the REIT initiates more rights exercises compared to the blue chip, it makes 100% sense to go for the latter product.


AK71 said...

Hi Chopra,

Thanks for the comments. I have done a blog post in reply. :)

See REITs and rights issues: A zero sum game?

SnOOpy168 said...

I just love this debate. Adding a follow up here:

AK71 said...

Hi SnOOpy168,

You do? I find that it is getting a bit dreary...

SnOOpy168 said...


This kind of discussions opens up "the other side of the coin" which I may have missed out and would like to hear.

The opinions are just opinions. Upto us to read, understand and then to accept / ignore / reject.


AK71 said...

Hi SnOOpy168,

Yes, of course, debate is good. I agree. However, it is also tiring. Perhaps, I need another break. :D

I find the assumption that industrial properties S-REITs should trade at 2.3% higher in distribution yield compared to office properties S-REITs just because the former has shorter land leases amusing. Why?

Well, the assumption would only make sense if the REITs simply held on to their properties without doing any asset renewal which is extremely unlikely.

Managers get fees from acquisition and disposal of properties. It is in their interest also to do asset renewal, therefore.

So, assuming that an industrial properties S-REIT was continually doing asset renewal to keep its portfolio's land leases healthy (i.e. its portfolio of properties hardly aged), and at the same time it was able to maintain a distribution yield of 10%, would it not make a good investment for income?

Ray said...

Hi SnOOpy168,

Hope you dont mind me asking you question in AK's blog (AK, hope you dont mind either).

How do you calculate the IRR? Do you take into considerations Capital gain / loss?
Quite puzzled how AIMS AMP's IRR are -20+ and -30+ respectively.

AK71 said...

Hi Ray,

No problem at all. :)

I could be wrong but they probably used the IPO price for MI-REIT (AIMS AMP Capital Industrial REIT's former self) as the base for the calculations.

Basically, anyone who got in at IPO for MI-REIT and is still a unitholder now of the renamed REIT has lost money, assuming that he did not add to his investment at the point of recapitalisation in a meaningful way.

Anonymous said...

Hi Ak, I am heavily invested in Reits too, interestingly it seems none of my stock counters found in your portfolio, and none of your stock found in mine. Mine are mostly lower yield type like the A-REIT, CMT, CCT, CLT, FCT, MCT. I only invested in them when i found that the right mindset has been inculcated in the managers of the organization. I had the opportunity to speak to the some the reit employees as a potential tenant, and they are well aware that they have to act on and take care of the uni-holders' interest. Not all reits bother to inculcate such awareness in their employees in my experience. Do you mind to share your portfolio selection criteria?

AK71 said...

Hi Casey,

I have CLT too. ;)

I have shared my analyses of the REITs I am vested in before. If you click on the labels using the recently added "Search by Labels" box in my right sidebar, you will find them. :)

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