I respect property developers like Kwek Leng Beng who build their businesses one step at a time. I recalled he dreads the idea of property trusts, about shifting the assets and liabilities into a SPV (Special Purpose Vehicle) where it is not carried in the books of the parent company. It was only after much deliberation that he listed the hospitality REIT, and that, at a very good price. Kudos to Liew Mun Leong for transforming Capitaland into a Finance Company for the property market. It is a different business model that has worked for the Company. Being old fashioned, I am sticking to the tried, tested and proven.
Hi MacGyver, No arguments with you. We both have similar views but just different ways of projecting them. Regardless of YTL\'s move, one with deep pockets and long time horizon tends to win everytime. Only time will tell but my wager will be on Francis Yeoh winning big time...eventually with this purchase. There is only one Ngee Ann and one Orchard Road...my 2 cents. Anyway, a slight note for real property again, yes the obvoius advantage is 5x leverage but remember the leverage cuts both ways and if property prices were to fall by 20%...your equity is wipe out. In fact, in most develop nations now, 1 in 5 property owners are having negative equity. I would not want to use the leverage and actually I did expect you to bring it up. It is not a real comparison although in reality 99% of households would have to borrow to buy a property. We\'ll leave out the buyers of their first property for living in becoz it is based on different qualitative measures. I;m purely focused on either the 2nd investment property vs property stocks (specifically REITs). If we use leverage in either investment, any returns (losses) would be significantly magnified many times over. That is how investment banks made and loss billions/trillions. As such I would compared them using direct returns be it rent or dividends in terms of absolute yields. Why would I buy an investment with 6% yields when I can get a similar investment with 12% yield. So if the question of leverage comes into play, it is obvious that the return from the higher yielding investment would be much more attractive in terms of cash flow etc etc. Your argument will probably be that the common man in the street cannot possible get to leverage up 5x buying REITs as compared to real property. you\'re right but that does not change the basic tenet of valuation of an investment. Yes it is true that property developers use the REIT instrument to realize the value of the property via this market mechanism but at the same token it cleans up the balance sheet. Property development should be valued seperately from property investment and I\'m sure that the market agrees too since most will discount the asset values held in the books of the developers as compared to when each is listed individually.
A simple reason why the properties held by the property companies are being valued at a discount is due to their poor liquidity. You cannot buy and sell a property within 24 hours. At the same time, investors do not know the intention of the property companies. Whether or not they will do something to realise the intrinsic values, is everybody\'s guess. Hence the discount to NAV. For REITs, the key issue here is the sustainability of the DPUs. We have already seen in some cases this year that some REITs and Shipping Trusts are proposing to pay their unitholders in units instead of cash. Reason -- They want to hold more cash.... You don\'t have that problem with physical properties. In addition, I have some difficulties in understanding the management fees that they are paying these management houses. While not huge, the amount is not exactly peanuts. What have the management houses done to enhance the DPUs that deserve this type of renumeration?
Hi, Those construction-turned property companies, companies like Popular who is trying their luck in property. Superbowl who gave up their bowling business to try property development. Essentially, companies who don\'t stick to their core competence and trying their luck in property market. Good luck to them... This downturn is more serious than a lot of people think. You saw what happened to Ascendas after TT International goes into difficulties right. I think that is only the tip of the iceberg. There will be more TT International cases coming out. There will be more retail players who backed out of their lease with the commercial REITs and there will be more manufacturing companies who cannot tahan the bad times and closed shops. Who can the REITs turn to for rental income? I am not frightening people but the risks of REITs have been understated in Singapore. A lot of retail investors don\'t understand that the deteroriation of asset quality will bring about lower DPUs and a downgrade of REITs. Just look at USA and Australia. There are cases of REITs going bust. It is absolutely possible. :woohoo: :woohoo:
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