Posts
Sabana REIT together with AIMS AMP Capital Industrial REIT are my top investments at the moment. Together, they account for a lion's share of my passive income generated from investments in the Singapore stock market.
Sabana REIT has declared a DPU of 2.14c for 3Q FY2011. Based on today's closing price of 91c per unit, this represents a distribution yield of 9.4% based on an annualised DPU of 8.56c. Beats leaving money in a savings account and being paid an interest income of 0.05% per annum, doesn't it? The best one year fixed deposit I know of pays an interest income of only 1%.
Sabana REIT will also legally complete acquisitions of four properties in 4Q 2011. These acquisitions are DPU accretive since they are fully funded by debt. This is possible due to its very low pre-acquisition gearing level. So, expect DPU to bump up in the coming quarters. Good news for anyone investing for income, surely.
NAV per unit after distribution: $1.05
Interest cover ratio: 7.6x
Estimated gearing, post acquisitions: 35%
Sabana REIT's total AUM is set to cross $1b with the completion of the said acquisitions and the REIT is bound to deliver on its promises made during its IPO.
The counter will go XD on 25 October and the income distribution is payable to unitholders on 29 November.
Read related posts on Sabana REIT: here.
Bloggy Award
37 comments:
Hi AK
Yea, tts good, just 0.04 difference from last Q
Hi,
Just notice this:
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_08B681F471E133624825792E002FADD3/$file/AIMSAMPIREIT_sale_of_Units_By_Manager_19_Oct_2011.pdf?openelement
I am wondering what it means when I see "the Manager of AIMS Reit sold units to partially fund payment of the final dividends to shareholders".
Hi AK71,
The 0.05% really throws a cruel joke the old mindset of "leaving your $ in the bank".
Anyway, when is AIMS' turn to declare the 3Q DPU? :)
Hi FoodieFC,
Within expectations. Not bad. :)
Hi INVS 2.0,
Joke? Who's joking? ;p
AIMS AMP Capital Industrial REIT just declared 2.5c DPU earlier this month, payable on 7 Dec. Did you miss that?
Hi AK71,
2.5c? The last time they gave out 5.3c, right? That's a 50% reduction. :/
...continued
Sorry, my maths failed. I am living in the pre-unit consolidation days of AIMS. LOL!
Hi Anonymous,
I believe the sale of units is to fund payment of dividend to the shareholders of AIMS AMP Capital Industrial REIT Management Limited.
It has nothing to do with the unitholders of the REIT. :)
Hi AK
Sabana's Net cash from operating activities was: 11510
Yet, it paid out 13,845 in distribution.
Do you think its sustainable ?
Best regards
B
Hi INVS 2.0,
I have made worse mistakes than this before. No worries. ;)
Hi B,
Distributable income is net income. This could be higher than cashflow from operations alone.
Investing in REITs, we look at the income statement. Refer to page 16 of its report: here
results in line with expectation... I only have a small position with Sabana; only 10 lots, was wondering should i tap in more, as most of my interest is in CACHE.... was thinking which has more potential... hmm....
Hi qinzheng,
Sabana REIT is a younger REIT compared to Cache Logistics. It does not have the latter's track record. Other than that, I believe both have equally good potential.
In terms of value, Sabana REIT's unit price declined to a point where distribution yield exceeded 10% not too long ago. It has since recovered somewhat.
Although it will have total AUM crossing $1b soon and its DPU is going to bump up because of its recent acquisitions, gearing is still comfortable at about 35%. It would still have a debt headroom of about $50m before gearing hits 40%.
The numbers are looking good. :)
Hi AK71
Just wondering, since REITs are in property rental business, if i have a sum of money, should i buy REITs or buy a property to rent out ? In other words, what are the pros and cons of REITs vs direct property purchase, and on balance, which is better in your opinion?
Regards
Towel
Hi Ak,
What if the asset value of sabana reit drops and results in gearing goes above 35%?
Must top up money? Interest rate increase for their loans?
Thanks.
Jim
Hi Towel,
It is tempting to invest in an industrial property in Singapore because the NPI can be quite high, say, around 15% on average.
However, we will have to take on the responsibility of managing the property. The risk is also higher if all our investable funds are utilised for just one property.
Investing in REITs with good numbers reduces concentration risk and is much less work. However, we have to expect lower returns since we have to pay the managers. Less autonomy, for sure, but it is a trade off.
Buy into REITs when prices are depressed, like now, will give us more attractive yields. 9 to 10% distribution yield is not too bad, I feel. Sentiments could get worse and we could even see distribution yields hitting the mid-teens or higher like in the last crisis.
However, if a person is a multi-millionaire and is able to invest in, say, ten or twenty industrial properties directly, he could be better off doing this instead of investing in REITs. He would have reduced concentration risk by having a larger number of properties and he could enjoy higher yields on his investments compared to potential returns from REITs, all else remaining equal.
Alas, I am not a multi-millionaire. :(
Hi Jim,
Sabana REIT received a corporate credit rating from Standard & Poor's not too long ago. This allows them to gear up beyond 40%. I believe the maximum is 60%.
In the event that a recession should hit and deflation follows, Sabana REIT's properties would have to decline by some 15% in value for gearing to approximate 41%, all else remaining equal.
You might be interested in these:
Sabana REIT: Recent developments.
Staying positive on S-REITs.
I remain sanguine about industrial properties S-REITs at the moment with a preference for some over others, of course. ;)
Hi AK71
Thanks for your insight.
I have been tempted to put in some money (plus bank borrowing) to buy industrial property as a few of my friends have done so.
Fortunately, I held back more because I am too lazy to manage a property. And your input has given me added assurance that I made the right decision, albeit based on the wrong reasons. haha.
Thanks
Towel
BTW I have this issue because I am also not a multi-millionaire in SGD terms
Hi Towel,
You are welcome. I am glad to share my views. :)
Of course, if you were to put the same question to someone who is invested directly in industrial properties in Singapore, you might get a different answer. ;)
Know our motivations and invest accordingly. If we are happy with the returns we are getting, we have probably done it right. It is all quite subjective though. :)
I think it boils down to our size of capital and economies of scales for the supporting services.
if I have 2 properties that I need an agent to collect rent and manage for me. I am sure that it will not be service fee for 1 property x 2. Surely a discount. Upto the point, where it will cheaper hire someone to manage for me full time.
Until I touch a few Big Sweep 1st prize lah.
Huah ah everyone.
Hi SnOOpy168,
That too. :)
Having 10 properties located in the same region is definitely going to benefit from economies of scale compared to having only 2 properties, for example. It is about collective use of available resources and collective bargaining power. :)
yup. In the case of a small time investor like me, REIT is the only choice which still allows sufficient liquidity on ownership.
Wished I had started much much earlier.... wish...
Have a good weekend everyone.
For industrial properties, it is better to invest via reits for all the reasons mentioned. Most important reason I personally believe is that I do not know what to do with an industrial property if I cannot find a tenant. Unlike a residential property, I cannot live in an industrial property.
However, do keep your radars on commercial shop houses, although prices may be near peak levels now. Yet, considering supply and demand, there is no more supply of HDB shops. Several investors I know, in their 60s now, have their geese that lay the golden eggs (rental) from early purchases of such shops. Alas, they are 99 year lease and now lease usu 50-70 years left. A shop in Clementi central may fetch 4-5 million. SImilarly, one in Toa Payoh /Bedok central could sell for 3 million.Reason is that their rental works out to a good yield of 4-5%. These uncles, I know, are happily retired.
So what is for our generation? Now all the shops are in malls and they belong to big companies/REITs. So do look out for those private commercial shops.
HDB does not sell shops anymore.
WHat is rare is most precious.
Hi AK, any comment for this research:
"The average rent for both hi-tech industrial properties and upper-storey private industrial space remained unchanged at $3.45 per sq ft. and $1.75 per sq ft per month respectively. It is believed that rents may go down, given the decrease in manufacturing output of 4.7% month-on-month and 10.5% year-on-year and upcoming completion of 19.8 million sq ft of private industrial space."
http://dont-losemoney.blogspot.com/2011/10/slowdown-in-industrial-property-sector.html
Hi AK71,
I'm invested in AIMS AMP REIT. Decided to take a small stake in it =)
Hi SnOOpy168,
Starting later might not be a bad thing. I started earlier and fell into quite a few holes. ;p
It is more important to start on the right foot and this is what I hope my blog can contribute to. :)
Hi financialray,
Indeed, what is rare is most precious or that's how the Chinese saying goes. ;)
Well, 60 years lease is plenty if we are able to get a net yield of 5% on a piece of investment. If we should be able to leverage with low interest rate, the yield could be even higher. :)
Yes AK,
60 years lease is quite the norm in some countries like Hong Kong.
When I buy a 60 year lease shop however, I usu put down 30% while taking a 70% loan to be paid perhaps over 20-30 years.
The value of a shop after 20-30 years will be drastically lowered if the lease is only 30-40 years left. So my advice is to go for shops that are 70-80 years lease left or better still, freehold, other things like location being equal. Unless of course, we are investing in the shop like an annuity and will buy the shop to keep till lease ends. If we can have our cake and eat it, it is better to aim for capital appreciation and rental income at the same time.
Our generation is rather pitiful. Retirement may just be a dream.
Hi Ah John,
In a recessionary environment, deflation will set in and almost nothing will be spared. I do not believe that industrial space rentals will be immune to it.
However, on a relative basis, industrial space rentals are stronger than office space rentals.
Tenants of industrial spaces are usually less footloose. High tech industrial space is quite resilient as tenants of conventional office space could move to high tech industrial space and pay a lower rent.
Of course, the new industrial spaces that are being completed could contribute to any future softness in asking rents if a recession sets in.
In spite of this, if industrial properties S-REITs should see their unit prices fall in response, I will buy more. Why?
The supply of new industrial space on a yearly average from 2011 to 2013 is below the new demand for industrial space over the last 10 years. This is significant when we factor in the number of recessions Singapore has gone through in that period. Singapore will usually bounce back and bounce higher too.
There will be corrections which could be quite severe but these I view as buying opportunities.
Unlike consumption, investing is not for the present. Investors must have an eye on the future. :)
Hi FF,
It's been a while. Good to hear from you. A hearty welcome to the AIMS AMP Capital Industrial REIT family. ;)
Hi financialray,
Till now, I still find it hard to believe that a new residential property in Hong Kong comes with a lease of only 50 years although I have known this for many years. It is simply mind boggling and some Singaporeans complain about getting a 99 years lease on their HDB flats.
As for the young being unable to retire, I believe that is how capitalism works. It is exploitative. Places like Japan, Taiwan and Hong Kong are "far ahead" of us. Why? There is no way an average young working adult is able to buy a residential property. Simply no way. My friends in these places are always in admiration (and envy) of Singaporeans being able to own their own flats even now.
Anyway, I digress.
Whatever motivates us, we have to ensure our plan to achieve the targets is sound. It might not be the best plan (most probably) but if it is something we can execute well, go for it. :)
Unless I am mistaken, lease renewal in HK is extremely cheap unlike Singapore. Best to check with Fortune REIT IR and see what they say about lease renewal. Think about Indonesia - lease is only 20-30 years but renewal only cost a few thousand dollars. The ones in Singapore will be substantial IMO. In either case, REITs with leasehold assets (especially industrial reits with 40 year lease) should be treated as self liquidating investments.
Nick
Hi Nick,
I don't see why you have to say "especially industrial reits with 40 year lease". All REITs with leasehold properties have the same "self-liquidating" characteristic. Difference is in the lengths of the remaining leases.
To ask a question that would put things in the correct perspective which will not villify industrial REITs: Are other types of REITs holding properties with 40 year leases any different from industrial REITs holding properties with 40 year leases? No.
Also, this "self-liquidating" issue is beaten to death. If a REIT with leasehold properties does not renew its asset base, then, it is "self-liquidating". I cannot imagine any REIT manager allowing this to happen.
Of course, asset renewal is not for altruistic reasons. The managers get paid acquisition and disposal fees.
So, apart from having some appeal from an academic perspective, this idea of "self-liquidation" has probably been given too much prominence in certain quarters and by some people.
Similarly, for K Green Trust. If the managers do not gear up and acquire new assets which would allow it to accumulate funds for asset renewal, then, it would self-liquidate in time. Again, I do not think this likely.
Anyway, thank you for the comment, as always. ;)
Hi AK,
I am also a fan of reits though my portfolio is nothing to compared with yours. I started to buy Sabana at S$0.96 after reading your blog. And am tempted to add some more units at the current trading price of around S$0.86. Do you think this is a strong support point?
According to the reit's 3Q presentation, about 60% of leases will expire in 2013. Is this something to be of concerned? Will the reit's "triple net master lease" help to matigate this consentration of lease expiry?
Best regards,
CS
Hi CS,
There is some support for the REIT's unit price at 86c. In TA, the longer a counter's price languishes at a certain level, the stronger it becomes as a support or resistance, depending on other indicators. So, in this case, the support could be getting stronger in time.
Having a large chunck of its leases ending at the same time is definitely a concern. It would depend on how good the management is in getting the leases renewed or, failing that, getting new tenants. We can only wait and see.
http://sabana.listedcompany.com/newsroom/20120106_170750_M1GU_51B50DCFBA4FEDA94825797D002AE090.1.pdf
Q4-2011 results out on 20Feb. A nice fat CNY ang pow for us, I hoped. ^-^
Hi SnOOpy168,
I am estimating a DPU of 2.2c. I like to think that I am being conservative. ;)
Post a Comment