I agree with the financial influencers out there who deciphered the current market situation. I shall not bore you with the usual and summarize the market with 2 lines.

Much liquidity from QE, Poor financial performance for most businesses except Tech (most probably).

Mr Loo, someone I admire, has explained in Dollars&Sense that S&P 500 has a bullish stance. Financial horse has expressed his stance that QE unlimited is going to push stock prices upward.

Mr Loo - https://dollarsandsense.sg/believe-big-stock-market-bull-run-coming-despite-current-covid-19-crisis/
FH - https://financialhorse.com/why-do-stocks-keep-going-up-how-to-explain-it-and-will-they-keep-going-up/

Well, my portfolio has more than 50% in cash currently.
The cash is for 3 purposes - First, to let me trade market movements in US market. Second, to buy REITs according to my investment plan. Third, to pay in case REITs issue any Rights.

I have learnt to watch out for Debt Maturity Profile before investing into REITs. Meaning, I ensure that they have no huge impending debt maturing in the next 3 years before buying into REITs.

Currently, I hold 53% Cash, 35% REITs, 12% Stocks. Well, let's see how much cash do I really need if REITs were to issue Rights like what they did in the Global Financial Crisis 11 years ago.

1. Capitamall Trust
CapitaLand Financial | CapitaLand
According to their press release dated 9 Feb 2009, they issued a 9-for-10 rights at a price of $0.82 for each rights. Rights Issue Price of S$0.82, which is at a discount of approximately 43.4% to the closing price of S$1.45 per unit in CMT as of market close on 6 February 2009.

Last Friday 22 May 2020, it closed at $1.85. After 43.4% discount, it will mean that the Rights if issued in the current context will cost $1.05.

If you now hold $1,000 worth of Capitamall Trust shares, you will need $510 to subscribe to the 9-for-10 Rights.

2. Fraser Commercial Trust (Now renamed as Frasers L&C)
Frasers Commercial Trust Analyst Reports (SGX:ND8U) | SG investors.io
According to their SGX announcement in June 2009, they issued 3 Rights for every one existing unit at a price of $0.095. The Rights Issue Price represents a discount of 60.4% to the closing price of S$0.24 per Unit as of market close on 29 June 2009.

Let's take reference to current Frasers L&C Trust's current price of $1.09. After a 60.4%, it will mean that the Rights will cost $0.43 each.

If you now hold $1,000 worth of Frasers L&C, you will need $1,183 to subscribe to all the Rights.

3. MapleTree Logistics Trust
Mapletree Logistics Trust Stock Info (SGX:M44U) | SG investors.io
Let's take a look at a logistic REIT. According to their press release on 24 June 2008, they issued 3 rights for every 4 existing units at a price of $0.73. The Rights issue Price represents a discount of  approximately 21.4% to the average traded price on 24 June 2008 which is S$0.9285.

Currently, MLT trades at $1.83. After a discount of 21.4%, it will mean that the Rights will now cost $1.46 each.

If you hold $1,000 worth of MLT, you will need $598 to subscribe to all the Rights issued hypothetically.

Conclusion
Fraser Commercial Trust won in terms of requiring the most money to subscribe to all the Rights issued during GFC. The Rights issued by this REIT also had the greatest discount among the 3. Why?

As at 31 March 2009, FCOT’s gearing level was 58.3% with gross borrowings of S$945.5 million, of which S$624.5 million is maturing in the second half of 2009.

On 17 June 2009, Standard & Poor’s Ratings Services also affirmed FCOT’s “BB” long-term corporate credit rating with a negative outlook. The negative outlook is due to, among others, FCOT’s highly leveraged capital structure. The Manager believes it is critical that the refinancing of the maturing debt takes place for FCOT to remain as a going concern.

When the phrase "Going concern" is mentioned, it means that a business is in deep trouble.

Well, there is a REIT which received an upgrade in credit rating in August 2010 after the GFC. This is *drumrolls please*..Ascendas REIT!

Moody's Investors Service upgraded Ascendas Real Estate Investment Trust's ("A-REIT") corporate family rating to A3 from Baa1 and the senior unsecured rating to Baa1 from Baa2 on 26 August 2010.

What did Ascendas REIT do during GFC?
In 2008, they purchased multiple properties. Acer Building, Sim Siang Choon building in Jan 2008. Senkee Logistics Hub in Feb 2008. 8 Loyang Way in Mar 2008. CGG Veritas Hub and Rutherford Science hub acquisition completed in Mar 2008 too. Completion of purchase of 31 Internation business park in Jun 2008.

Well, Ascendas REIT did do a preferential offering in Jan 2009, coupled with 2 batches of Private Placements in the same month and Aug 2009 respectively.

Let;s focus on the preferential offering in Jan 2009. It was a 1-for-15 preferential offering. This means that you can buy one share at a 7.0 to 9.4% discount to the adjusted volume-weighted average price at that time for every 15 shares you held.  It is definitely a milder discount compared to the examples above.

Is there any REITs that did not do any offering at all?
Parkway Life REIT did not issue Rights. Instead, they won some awards and expanded their property portfolio into Japan nursing homes.

They won Most Transparent Company award 2008. Interestingly, they began investing in Japan nursing homes in April 2008 which went on well into 2009.

Happenings of Parkway Life in 2008 and 2009:



Learn about REITs investing for free on Youtube?
It is interesting to learn about REITs, especially during Circuit Breaker. Well, it definitely beats being irresponsible and going out. Or should I say, I am someone who prefers staying at home anyway *winks*.

I agree with the gurus out there, and my sifu (you know who you are), that REITs is a simple business model, yet requires a good amount of knowledge to invest in them successfully.

I first started investing in REITs when I was in my first year or uni. I bought Lippo and Cambridge Industrial REIT. Eventually I sold both at a profit, coupled with dividends to speculate in the penny stocks.

That was a short encounter I had with REITs, way different from the approach I now take. Now, I treat REIT investing seriously as a long-term cash-flow generator. I track my portfolio using Investing Note, which I highly recommend too.

Recently, I am blessed with more leisure time due to Circuit Breaker. As such, I have started a Youtube channel that aims to be the better (or best?) REIT course out there. In time, I would blog about the content I aim to create too. However, you can suggest topics which you feel I should cover too.

I want it to be free. Free for all who wish to begin investing. If I were a financial adviser, I wouldn't dare to tell you to buy stocks, because businesses are susceptible to disruptive technologies. Property is different.

Another reason I want it to be free, is because I don't feel you should be paying $2,499, or $3,888 for investment courses out there. Or, $499, $450 whatever the amount. At the same time, I do not want quality to be compromised, so I would take time to publish the videos on YouTube.

Properties are real assets, that is going to be there forever. It beats bitcoin, or Gold too, as these 2 instruments are purely speculative. They do not generate cashflow like property does.

Nonetheless, a good portfolio has to be made up of a good mix of stocks, bonds, REITs, or whatever is within your Circle of Competence.

Here's the link to my Youtube channel - https://www.youtube.com/channel/UCvrOwN6YTxVr_5OgOvx32NQ

Please help to Like and subscribe to the channel as it would go a long way to encourage me to keep on creating the videos :)

Feel free to give any comments to help me improve! Greatly appreciate.

Meanwhile, stay safe please!


~Mr Llama

2 Comments

  1. Referring to your sentence below,...

    "Well, let's see how much cash do I really need if REITs were to issue Rights like what they did in the Global Financial Crisis 11 years ago."

    I observed 2 related events recently :-

    1) Ascendas REIT - acquisition of a warehouse was made in a suburban area nearby Sydney, and this acq was completed entirely with debt. This means the mgr is comfortable with the debt headroom post-acq not breaching the regulatory limit.

    2) Mapletree Industrial Trust - acquisition of the remaining 60% interest of the Data Centres from the Redwood Mapletree entity. A private placement was initiated for this acq.. I would call this EFR a normal course of event which is based on the financial calculations needed to make an effective acq without increasing too much of the unitbase size AND without jacking-up the aggregate leverage too high, which will take place during good times.

    An effective acquisition should provide accretion in dpu and accretion in nav.

    Hence,.. what we see in the S-REITs ecosystem is that these REITs are comfortable with their leverage positions, especially since the MAS has increased the leverage limit ruling from 45% to 50% in May, 2020. There may not be too much needs for S-REITs to perform EFRs this time round, vis-a-vis the Global Financial 12 years ago.

    This is left to be seen,... of course,....

    CK

    ReplyDelete
    Replies
    1. Agree wholeheartedly with your observations, very good points to note.

      From the financial institutions pov, they are better buffered with stricter capital regulations too. This can give investors more confidence that REITs can get to refinance their debts.

      Delete

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