Showing posts with label reits property portfolio. Show all posts
Showing posts with label reits property portfolio. Show all posts

Monday, 5 August 2019

Property counters: How are shareholders rewarded? How exciting are property counters in terms of investment returns?

Property counters

1. Land held for development.

2. Land being developed and properties for sale.

3. Investment properties held for rental income.



How are shareholders rewarded?

After successful development and realisation of profits from the projects, the property counter may choose to reward the shareholders by paying half their earnings as dividends.

The investment income from properties held as investment can also be partially disbursed as dividends.

[How exciting are property counters in terms of investment returns?]

Thursday, 17 December 2015

Health Care REIT

Health Care REIT, Inc.
HCN (NYSE)
Website: www.hcreit.com

Sector:  Health Care
Beta Coefficient: 0.43
10 Yr Compound EPS Growth:  20.5%
10 Yr Compound DPS Growth: 2.5%
Dividend raises, past 10 years: 10 times.


Financial Result Year 2014

Revenues (m)     3,344
Net Income (m)    505.0
Funds from operations per share  4.13
Real Estate owned per share 69.5
DPS 3.18
Current yield 4.4%

High Price  78.2      DY 4.07%
Low Price   52.9     DY 6.01%


This is a large REIT, paying yield exceeding 5 percent.

It invests primarily in senior living and medical care properties primarily in the U.S.  

The REIT owns and/or operates some 1,328 properties in three countries and operates assisted living, skilled nursing, independent-living and the medical centers.

Health Care REIT operates in three primary business segments:
  • Seniors Housing "triplet-net" segment:  primarily owning senior housing properties.  This segment owns 666 properties, most in the US and contributes 33% of revenues.
  • Seniors Housing Operating segment which operates 202 properties in 34 states, 54 in Canada and 41 in UK and contributes about 43% of revenues.  This is the fastest-growing segment.
  • Medical Facilities which operates office space set in 241 facilities for medical purposes, inpatient and outpatient medical centers and life science laboratories, contributing about 14% to revenues.

Occupancy rates are 87.7% in the Seniors Housing triple-net segment, 90.3% in the Seniors Housing Operating, and 94.4% in the Medical Facilities segment.

In 2014 and early 2015, the company made two medium-sized common stock sales, which hurt the stock price temporarily but also funded the acquisition of $3.7 billion in new real estate investments.

The company added a modest number of shares again in 2015 to fund acquisitions and to approach a goal of 60% equity.

REITS are typically good income producers, as they are required by law to pay a substantial portion of their cash flow to investors.

The accounting rules are different, and REIT investors should focus on Funds From Operations (FFO), which is analogous to operating income.
(Net income figures have depreciation expense deducted, which can vary in timing and not always be realistic.)

FFO support the dividends paid to investors.

Investing in such a REIT, you are investing in real estate and in the health-care industry, and with the property mix owned by Health Care REIT, you are investing in the aging population.



HCN (NYSE)

Wednesday, 2 October 2013

The Six main types of REITs

There are 6 main types of REITs

1.  Office REITs - own and operate office buildings
2.  Retail REITs - own and operate retail properties like shopping centres and shopping malls.
3.  Industrial REITs - own and lease out industrial properties that include light industrial properties, factory space, warehouses, business parks and distribution centres.
4.  Hospitality REITs - own and lease properties to hotels and serviced residences.
5.  Health Care REITs - own health care facilities that are leased to health care providers like hospitals, nursing homes and medical offices.
6.  Residential REITs.- own and operate multi-family rental apartment buildings as well as manufactured housing.

Health care and industrial REITs have the highest yields but the lowest potential for capital gains.
Retail, residential and office REITs have relatively lower yields but greater potential for price appreciation.
Office, hospitality and industrial REITs are highly sensitive to the economy (that is, their business performances are cyclical).


Saturday, 27 July 2013

Understanding the expected trade off between potential capital appreciation and yield across classes of REITS.

Different classes of REITS
1.  Retail/Mall
2.  Office/Commercial
3.  Hospitality
4.  Industrial
5.  Health Care


Comparison of yield across various REITS
1 < 2 < 3 < 4 < 5

Comparison of Potential for Capital Appreciation across various REITS
1 > 2 > 3 > 4 > 5



Understanding the expected trade off between potential capital appreciation and yield across classes of REITS.

The retail or mall REITS tend to favour capital appreciation in the value of the underlying assets.

  • Malls are hard to duplicate and scarce.  
  • In an asset inflation situation, the underlying mall property would increase in value faster than other classes of REIT with the attendant appreciation in the price of the REIT share.  
  • The trade off would be lower distribution yield.  
  • Since malls REITS are highly demanded, the price of the REIT share often increases to such an extent to reduce the yield on the REIT.


On the other end, the health care REIT seems to give the highest yield but trades off its potential for capital appreciation.

  • It is easy to conceive that a health care REIT will not have much capital appreciation in its assets if it has a 15 year fixed lease with an operator for its assets.  
  • For example, in a particular such REIT, any increase in rent is undertaken only once and year and only at the same rate as the CPI to keep track with inflation.  Even if the asset increases in value substantially, the REIT will not receive any additional income for the increase since it has signed fixed long term leases with the operator.  As such capital appreciation is capped.  
  • On the other side of the equation, the health care REIT is able to pay very consistent and high yields to the unit-holders.  
  • Health care REITS are as close to being recession proof as any other class of REIT would allow (assuming the operator does not default).  
  • Since health care is by its nature also less prone to cycles compared to offices or industrial business, health care REITS are well recommended in period of grave economic uncertainty.  


Ref:
Value Investing in REITS by Attlee Hue

Tuesday, 18 June 2013

So how would you value the REIT's business?

1. Book Value
The book value or net asset may not also fully value the REIT as a business operating to maximise the stream of rental and other forms of income derived from the property.  So one should not entirely simply rely on the book value.  Value investors however often would be reluctant to pay for a REIT at a price higher than the NAV unless there is immediate prospect of the NAV being re-valued# once a new valuation is conducted.

Book Value = Value of each of the properties + Value of its other assets (cash, inventory and receivables) - Liabilities

2. Property Yield
The property yield shows the earning power of the properties within each of the REIT's portfolio.

Property Yield = Net Property Income / Property valuation x 100

3. Distribution Yield
Distribution yield gives an indication of how much return you would expect from the REIT on an annual basis from the distribution.

Distribution Yield = Distribution per Unit / Price paid for Unit  x 100.


[#The REIT owns the various properties which would be valued by professional valuers at least once annually. Valuers will often provide a value of each property on the basis that the REIT is a going concern i.e. that the business of the REIT is functioning normally and is not forced by distress to sell the property.]


APPROACH TO REIT VALUATION

Why would you want to invest in a REIT?
You want to accumulate a string of properties with your money and allow them to be managed by a professional manager.

What would you want from your portfolio of properties?
1.  You want to enjoy capital appreciation from the property.  You can achieve this easily by owning the properties.
2.  You want the revenue that the properties might generate.  This revenue is necessary to pay all the property expenses including the mortgage and also to provide for you some return to compensate you for the use of your capital that you have ploughed into the properties. For this, you have to calculate the Property Yield and the Distribution Yield.

What further information do you need to make an intelligent decision?
The Distribution Yield tells you your return if the tenants continue to occupy the premises and pay their rent and rental rates stay the same.
1.  What happens if this happy scenario is affected by economic turmoil?
2.  If the property vacancy increases or rental rates drop, can the mortgage still be serviced by the earnings?

Thursday, 1 December 2011

How good are the returns from REITS?

Here is a nice table depicting the returns from 22 Singapore REITS.  This table was posted in this blog:
http://cgmalaysia.blogspot.com/2011/11/reit-myth-busted.html



18 of these REITS were launched before 2009, 1 in  2010 and 3 in 2011.

Questions:

1.  What are the possible reasons for one REIT giving a better return on capital compared with another?  For example,  the 64.8% return on capital of Suntec Reit (started in Dec 2004) beats the 39.5% return on capital of Fortune Reit (started in August 2003)?

2.  By law, 90% of earnings of REITS are distributed as dividends to the shareholders.  This leaves little money for reinvesting for growth.  How are the good managers of REITS seeking money to grow the company?

3.  Note that of those 18 REITS launched before 2009, 14 raised new capitals from cash calls from the shareholders.  Only 4 of these 18 (Frasers Centrepoint Trust, Suntec Reit, ParkwayLife Reit and CapitRetailChina Trust) did not ask for any subsequent cash calls.  What distinguishes the 2 groups of REITS and their managers - those seeking cash calls and those not seeking cash calls from the shareholders?  Are there significant differences between the returns on capital between these 2 groups?  How are the managers of the 4 REITS that did not seek further cash calls, seeking growth and growing their earnings?

4.  Of the REITS raising cash calls from the shareholders, the amount raised exceeded the dividends paid to the shareholders over the same period in 9 of these 14 REITS.  In the remaining 5, the cash calls were a significant percentage of the dividends distributed to the shareholders over the same period. Many of those who invested in REITS are seeking passive income to supplement their living and may not have further capital to reinvest.  What is the impact on the return on the capital to the group of shareholders who were unable to take up the rights issue?

5.  For those with the money, would taking up these cash calls give them a better return on capital than if they did not?

These are some interesting points to ponder further.



Also read:
FEATURED POSTING: REITS: WHERE IS THE MOOLAH?

The Myth of EPS Growth
The Myth of EPS Growth - Impact of new capital issues on EPS

and related articles:


Intro to REITs Investment

What are REITs?
REITs stand for Real Estate Investment Trusts. They are specialized companies that invest in commercial, industrial, residential and healthcare real estates. Examples on the Singapore Stock Exchange includes CapitaCommerical Trust (Commercial), Cambridge Industrial REIT (industrial), Saizen REIT (residential) and Parkway Life REIT (healthcare).These companies buy and manage properties including shopping malls, offices, hotels, hospitals.

REITs usually pay a generous dividend because they are required by law to distribute most of their earnings to shareholders. In exchange, they receive tax incentives.

However, good REIT management teams have found ways to raise the money they need.
  1. Sometimes they raise money by selling additional shares of stock, including preferred stock.
  2. They can borrow money from the debt markets through issuing unsecured notes and debentures -- bonds.
  3. They can do private placement offerings.
  4. They can sell poor performing properties and reinvesting the proceeds in more profitable real estate.
  5. Good REIT management also seek ways to raise additional cash from their existing businesses, by raising rents and reducing expenses *this includes reducing overhead.). This increases their Funds From Operations (FFO).

What are the Risks of Investing in Real Estate Investment Trusts?

Of course, nothing in this life is guaranteed, and that includes real estate investment trusts.

REITs are more than just a pile of properties, they are active businesses, and subject to business risks. It's a testimony to the industry, however, that over the years only a handful have gotten into deep financial trouble.

According to Ralph L. Block in Investing in REITs, those real estate trusts that have gotten into trouble have done so primarily due to 
  • excessive debt leverage, 
  • poor allocation of capital resources, and 
  • questionable transactions with directors or major stockholders.
That's for individual REITs. As an industry, their businesses are subject to two particular risks no matter how well managed they are (though good management can succeed despite these dangers).

1.  Overbuilding or excess capacity, or overdevelopment.
2.  High interest rates
Choosing a good REIT is like choosing any other value investment.

Assets = Real Estate
Debt = Debt
Returns = Rents + other payments received on the portfolio.

An investor must analyze and compare a REIT's:

  • management quality,
  • real and anticipated returns,
  • yields, growth,
  • reserves, and
  • asset values.
Many of the techniques for common stock can be put to work here.

REITs - Property Portfolio

REIT investors should check out the property portfolio. This isn't easy, but it's easier than it used to be with online resources, usually provided by the REIT company itself.


Because real estate is not traded regularly, the ability to ascertain values is limited to:
  • appraisals,
  • replacement values, and,
  • for income-producing properties, discounted cash flow analysis.
Appraisals are difficult to find.
Looking at the properties, and their locations, and assessing commonly reported local real estate price trends, occupancy rates, and economic trends, and whether the book value of a property is sustainable, is probably best.



REITs - Debts and Leverage

Good REIT managers will typically hold debt levels to 35% or less of the total capitalization of the trust. 


REITs - what and why

REITS are technically investment trusts that works like closed-ended fundsholding real estate instead of stocks or bonds.


REITS pool investor money to allow average individual investors to invest in a portfolio of
  • commercial,
  • residential, or
  • specialized real estate properties.
By buying shares in a REIT, you take proportional ownership in the real estate ventures that the trust owns. And these ventures range beyond traditional properties to health care and retirement facilities; ports and warehouses; even car dealerships, penitentiaries, and high-end hotels.

REITS and Returns

Funds from operations (FFO) is an important measure of a REIT's operating performance. 


FFO includes all income after operating expenses, but before depreciation and amortization.

Growth in FFO typically comes from:
  • higher revenues,
  • lower costs, and,
  • management's effective recognition of new business opportunities.
REITs with a growing FFO are generally more desirable,because this is a demonstration of an ability
  • to raise rents and
  • keep occupancy stable.
Beware of dividends that are being paid out of profit from the sale of property or from cash reserves; these payments may not be sustainable.

Investing in REITS

Value investors strive to identify investments trading at valuations below intrinsic value. 


The objective is to identify REITS with potential for significant appreciation relative to risk. 


Because REITS are generally regarded as hedges or defensive investments, they may be overlooked during bull markets.

Most recently, REITS in healthcare and industrial sectors have done wellbecause they have both a real estate and a business component.


Friday, 22 October 2010

Understanding Malaysian REITS

Thursday October 21, 2010

What is REITS and how to get monthly dividend payments from it

Personal Investing - By Ooi Kok Hwa


A LOT of investors, especially senior citizens, are hoping to get consistent and regular dividend payments from stocks.
In this article, we will look into constructing an investment portfolio, which consists of real estate investment trusts (REITs), to get monthly dividend payments.
A REIT is a real estate company that pool investor funds to purchase a portfolio of properties. Normally, it has two unique characteristics: investment in income-producing properties, with almost all of its profits distributed to investors as dividends.
From the table, based on the latest stock price (as at Oct 18) and on assumption that the same dividend payments will be paid over the next 12-month period, almost all REITs will provide about 7%-8% dividend yields. Based on our observations, most of the REITs will try to pay higher dividends over the years. Hence, if the overall economy continues to recover, some REITs may pay even higher dividends for the coming few years.
Due to them only listing at the middle of this year, we have excluded CMMT and Sunreit.
As mentioned earlier, a lot of retirees would like to invest in investment assets that can provide a consistent and regular dividend income. Therefore, we think that REITs can provide a good alternative to the retirees. From the table, except for Arreit, Atrium, Axreit and Hektar, all other REITs will make dividend payments twice per year. Most of them will pay their dividends in the month of February and August. Hence, if an investor would like to receive his dividends other than the above two months, he may need to diversify their REITs into holding many types of REITs.
Based on the list of REITs in the table, we can see that, except for the month of January and April, dividend payments were being made at different months throughout the year, thus investors can receive a stream of dividend income by buying into different types of REITs.
Investors can build a REIT portfolio consisting of a few REITs which make dividend payments at different months of the year. The following is just one of selection options available for consideration.
Based on the current price dated on Oct 18, assuming that the same dividends will be paid in the next 12 months, a portfolio with AMfirst, Arreit, Atrium and Hektar can generate a dividend yield of more than 8% (see table). Besides, by buying with equal amount into these four REITs, investors can get dividend payments for almost every month, except for the month of January, April, July and October.
Nevertheless, investors need to understand that the above selections are solely based on the assumption that these REITs will reward investors with the same dividends and pay during the same month as shown in the table above.
We also understand that apart from the above four REITs, some other REITs may reward investors with even higher dividend payments.
OoiKokHwa is an investment adviser and managing partner of MRR Consulting.


Click here too:
http://boyboycute.blogspot.com/2010/10/why-bother-investing-in-malaysian-reits.html
This blogger expressed concerns over Malaysian REITS.

THURSDAY, OCTOBER 21, 2010


Why bother investing in Malaysian REITs?

Today, i read an article on The Star by Mr. Ooi Kok Hwa regarding REITs. Take a lot at the article here.

What makes me furious is that Mr. Ooi who is an investment adviser and managing partner of MRR Consulting,has misled the public by not discussing the real issues in Malaysian REITs(MREIT).I guess a consultant is still a CONsultant.

MREIT is full of crap properties.If you look at their portfolio,most of these properties are actually dumped by developers/owners since they cannot sell their buildings in the market to professional institutional investors.For example,SUNWAY REIT (which i wrote earlier) is one of them.Creating a REIT is the best way for developers/owners to either 'sell their building at higher valuation' or 'unload their poor quality properties to the market'.

Tuesday, 25 May 2010

How Do Real Estate Investment Trusts Grow?

How Do Real Estate Investment Trusts Grow?

One argument that might be made against real estate investment trusts is that, because they are required by the government to pay out at least 90% of net income to their shareholders, they don't have the cash from retained earnings to expand their businesses.

However, good REIT management teams have found ways to raise the money they need.

  1. Sometimes they raise money by selling additional shares of stock, including preferred stock.
  2. They can borrow money from the debt markets through issuing unsecured notes and debentures -- bonds.
  3. They can do private placement offerings.
  4. They can sell poor performing properties and reinvesting the proceeds in more profitable real estate.
  5. Good REIT management also seek ways to raise additional cash from their existing businesses, by raising rents and reducing expenses *this includes reducing overhead.). This increases their Funds From Operations (FFO).


When speaking of this, even non-retail REITs make use of a retail industry term -- same store sales. That is, the more sales that can be generated by the same store, the more profitable it. The more rent and other revenue that can be raised from the same property, the profitable it is and the more cash it generates for the company.

This can include raising rents on existing occupants, upgrading properties to higher-level occupants and reducing vacancy rates. It can include upgrading or expanding the property.

Retail REITs, especially shopping malls, usually have percentage-rent clauses in their leases. This means that the mall gets a percentage of the store's revenue above a certain preset level. The more successful the store, the higher rent it pays. Keep that in mind the next time you hear a commercial for a shopping mall on the radio -- the mall wants you to come and shop there because the more money their individual stores make, the more rent the mall receives.

Some REIT leases include periodic rent bumps that are fixed amounts or based on an index of inflation such as the Consumer Price Index.

Some mall and other types of REITs save on expenses by getting occupants to pay for common needs such as security, advertising, and janitorial services. This is known as expense sharing or cost recovery.

Overall, the more cash the real estate investment REIT can raise through its operations, the higher its internal rate of return or IRR.

Obviously, the Higher a Company's Internal Rate of Return is, the Better for its Investors

Of course, the stronger the real estate trust company is to begin with, the more able it is able to raise additional money.

The REIT Real Estate Investment Trust can use the additional cash to purchase additional properties, or even to purchase entire private real estate companies, or even other REITs.

The goal is to find opportunities to make an additional internal rate of return that's higher than the company's cost of equity capital. The difference between the cost of capital and the FFO a company can earn from the property is called the spread.

Strong Real Estate Investment Trusts have picked up great properties at bargain basement prices following local and national real estate market collapses. Eventually demand picks up again, and the REIT is making money off the properties.

Some REITs are Able to Expand by Developing New Properties in their Specialization and Local Geographic Area

Of course, this depends on their ability to raise the necessary capital to fund the development until it begin making money.

Of course, such development projects come with the risk of cost overruns on the construction, the demand for the space may be reduced during the development period (perhaps a recession has just started), and the risk that interest rates rise during the construction period.

Some real estate companies have formed joint ventures (JVs) with institutions to develop, acquire and manage properties. The REIT provides the skills and experience to acquire, develop and manage the commercial properties. The institutions provide the capital. Both can benefit.

With the passage of the REIT Modernization Act, these trusts have been allowed to engage in real estate-related businesses.

REIT trust investors should look for management teams who are aggressively seeking to increase both Funds From Operations and Internal Rates of Return.

http://www.incomeinvesthome.com/growth/reit/equity/growth.htm


Related: Understanding REITS


Investing in Real Estate Investment Trusts (REITs)
http://www.pimco.com/LeftNav/Bond+Basics/2006/REIT+Basics.htm

Real Estate Investing through REITS
http://beginnersinvest.about.com/od/reit/a/aa101404.htm

Understanding Risks before Investing in REITS
http://findarticles.com/p/articles/mi_m0JQR/is_3_14/ai_30366025/

What are the Risks of Investing in Real Estate Investment Trusts?

What are the Risks of Investing in Real Estate Investment Trusts?

Of course, nothing in this life is guaranteed, and that includes real estate investment trusts.

REITs are more than just a pile of properties, they are active businesses, and subject to business risks. It's a testimony to the industry, however, that over the years only a handful have gotten into deep financial trouble.

According to Ralph L. Block in Investing in REITs, those real estate trusts that have gotten into trouble have done so primarily due to 
  • excessive debt leverage, 
  • poor allocation of capital resources, and 
  • questionable transactions with directors or major stockholders.
That's for individual REITs. As an industry, their businesses are subject to two particular risks no matter how well managed they are (though good management can succeed despite these dangers).

1.  Overbuilding or excess capacity, or overdevelopment.

Real estate property typically goes through a boom to bust cycle. When demand for offices/apartments/malls is going up, developers rush in to build more of these properties. It's difficult to know when enough is enough, and within a few years, too many offices/apartments/malls are on the market, and rents go up and occupancy rates go down.

Sometimes the problem is not with the amount of new properties put on the market, it's with the local economy. When it goes bust, for whatever reason, the local commercial real estate market goes down.

One good example is the San Francisco Bay Area during the late 1990s. During the dot com/high tech bubble, people in Silicon Valley were renting out their couches to computer programmers for hundreds of dollars a month. After the dot bomb crash of March 2001, when many high tech companies closed their doors, the market for office space in that area went downhill with it.

Such periods are known as renters markets, and are therefore bad for property owners.

It's simple economics. When supply goes up too much and/or demand goes down too much, the price of the product must go down.

2.  High interest rates

Interest rate increases affect REITs in a number of ways.

Since their value as an investment is for their income, higher interest rates in the overall economy makes bond yields higher, driving some money from REITs to bonds and preferred stocks.

In operating their businesses, higher interests rates makes it harder and more expensive for Real Estate Investment Trusts to borrow the money they need to expand.

Also, higher interest rates put pressure on the businesses they're renting to (by increasing their cost of borrowing money, and from reducing consumer income to spend), making it harder for those businesses to pay rent, or to pay higher rents.

Also, reduced sales in stores reduces the amount of overage rents that mall REITs can collect from the stores.

There is a risk in using current rental income to value a REIT. What current tenants are paying may be more or less than current market rents. When the current leases expire, the company will have to negotiate current market rents.

When current rents are below market rents, that's known as embedded rent growth or loss to lease, because when the lease is renewed, rents will have to go up.

When current rents are below market rents, that's known as rental roll-down, because when the lease is renewed, rental income will have to go down.

In a commercial lease, one year is used as a reference against which revenues or expenses are measured in later years. This is known as the base year.

The total leasable space in a commercial property is known as the Gross Leasable Area or GLA

http://www.incomeinvesthome.com/growth/reit/equity/risks.htm

Saturday, 4 July 2009

REITs - Property Portfolio

REIT investors should check out the property portfolio. This isn't easy, but it's easier than it used to be with online resources, usually provided by the REIT company itself.

Because real estate is not traded regularly, the ability to ascertain values is limited to:
  • appraisals,
  • replacement values, and,
  • for income-producing properties, discounted cash flow analysis.

Appraisals are difficult to find.

Looking at the properties, and their locations, and assessing commonly reported local real estate price trends, occupancy rates, and economic trends, and whether the book value of a property is sustainable, is probably best.

If the REIT you choose is diversified with a number of different types of properties in different geographic regions, you will experience less volatility if an industry or locale experiences hard times.

If you are more concentrated, be sure that the type of property or the geographic area continues to be economically viable into the foreseeable future.

Occupancy rates for past and current years are available for most major and some smaller cities in the US from commercial real estate Web sites, and you may even wish to contact a local real estate professional.

REIT appraisal is difficult, but there is another way: REIT mutual and closed-ended funds, and there are even a few REIT ETFs. Many mutual fund families have funds built around REIT investments. REIT mutual funds are an easy way to get exposure to REITs without spending volumes of time researching the valuations of underlying holdings, vacancy rates, economic vibrancy, and so on. One way to find these funds is to enter "REIT mutual fund" in your search engine.