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An earlier blog post on FCOT, CCT and K-REIT attracted much attention and many comments. A friend asked me offline if I would invest in any of these REITs.
Well, I have some pre-historic investments in FCOT and K-REIT while my investment in CCT was divested a few months back.
Although I am not enthusiastic about office S-REITs, I am aware of what analysts are saying about how office rentals have bottomed in Singapore and that things are looking up. So, office S-REITs should perform better from now. The operative word here is "should".
With an interest cover ratio of 4.21x (correct as of 22 June 2010), it easily trumps CCT's 3.8x, K-REIT's 3.6x and, of course, FCOT's 2.74x.
Furthermore, AA REIT's latest acquisition is yield accretive and it has managed to re-finance a S$175m loan due in 2012 at a better interest rate (from 3.5% to 2.16%), reducing interest cost. So, its interest cover ratio should be higher in the near future. This is a very promising REIT and I would accumulate on weakness.
A friend asked me about Mapletree Logistics Trust (MLT) recently. I remember that its yield is lower and that it has rather high gearing. Looking at its presentation slides of 25 July 2010, MLT's annualised DPU is 6c which means a yield of 6.82% at the latest unit price of 88c. Gearing is at 38.8%. Its interest cover ratio is 5.9x! This probably explains its popularity.
On 28 July 10, I blogged about MLT's purchase of three distribution centres in Japan for a total of JPY13b or S$200m. At that time, I said "with these latest acquisitions, gearing level would be pushed up to 43.6%. One wonders if Mapletree Log would go to unitholders with hat in hand in the near future or, perhaps, do a share placement."
As per expectation, recently, MLT launched an equity fund raising to raise approximately S$300 million in capital mostly to fund acquisitions in Singapore, Japan and South Korea. Without the equity fund raising, MLT's gearing would be at 46% which is uncomfortable. With this exercise, gearing level would be maintained at 38%.
So, what is my take? Although there is consensus that office S-REITs should do better from now, I would stick to industrial S-REITs as the numbers speak for themselves.
Don't let my opinion stop you from buying into office S-REITs though. Value is what we get and price is what we pay. FA can never do the job of TA. Good luck.
Related posts:
FCOT, CCT and K-REIT.
AIMS AMP Capital Industrial REIT: Rights issue.
Mapletree Log: Acquires properties in Japan.
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