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Old 31-10-2010, 06:15 PM   #1
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[Investor Basics] Fundamental Analysis Concepts & REIT

Following two previous posts on Investor Basics – Concepts & Style and Technical Analysis Concepts, this article would look at one of the best yielding groups of stocks in the stock market – REIT, as well as some of the other terms related to Fundamental Analysis Concepts.

Real Estate Investment Trust

Real Estate Investment Trusts (REIT for short) are securities of companies that manage properties in their portfolio and distribute the profits from these properties, revenue from the rents and leases, to their unitholders.

Proper terms for REIT are slightly different from a normal stock counter.
In REIT, a stockholder is known as a unitholder, a share is known as a unit, dividends are called distributions.
As REITs are unique, profits that come from their rents or leases are to be distributed at 90%! Yes, 90% of the profits MUST be distributable. Note that this is only so for REIT!

As REIT gives constant and stable (for most of them anyway) distributions, many passive investors like REIT for their simplicity and consistency. Active Investors like REIT for their stock appreciation during key periods like during distribution periods or when there are announcement on new property acquisitions.

Personal advice for speculators in REIT is to stay away. The reasons being are while REIT many appreciate, the primary idea is to look at the distribution yield. This alone already puts an invisible resistance on the REIT counter. Another reason is that since the REIT distributes most of their profits, their cash flow is limited. So while REIT does appreciate, they will usually do so gradually and slowly, something that short-term traders must take note of.

The primary concept when one wants to own units of REIT (usually for a mid to long term), should be for the constant distribution and the distribution yield. However, there are other important figures to look out for in REITs. These figures while subjective to the eye of the beholder, gives certain insight on things that are not seen by the naked eye.

Distributions

Distributions give a constant stream of money back from your investments. While similar to dividends, companies that give dividends usually have no obligation or fixed policy to do so but distributions are necessity for Trust securities.

Distributions of REITs are usually given semi-annually or quarterly. There is a list of REITs and the frequency of their distributions at the end of this article.

Distribution Yield

Distribution yield, similar to dividend yield already covered in my earlier article, is calculated by taking the total annual DPU (distribution per unit) divided by the price of the stock at the point in time the yield is to be calculated, multiply by 100%.

Example: $0.10 (total annual DPU) / $1.30 (price of stock when calculating yield) x 100% = 7.69%

What this means is that, based on the price of $1.30, the REIT returns 7.69% annually.
You can use this figure as a guide if you want to invest into this REIT. Assuming that the current stock price is now at $1.50 instead of $1.30 and assuming that the total annual distribution stays the same at $0.10, the current distribution yield is no longer 7.69% but 6.66%. Its yield has dropped by 1% and the rule of thumb is that the yield will keep dropping as the REIT stock price increases and if its annual DPU stays the same or dips.

Meaningful: Distribution yield will tell you the percentage of returns you can expect annually from the amount you intend to invest or had invested.

Passive investors should use distribution yield to calculate the optimal price they want to invest into an REIT based on the returns they want to see. Annual DPU & distribution yield are always indicated in all REITs' financial year end reports.

Net Asset Value Per Unit (NAVPU) / Net Asset Value Per Share (NAVPS)

Net Asset Value Per Unit (NAVPU) or Net Asset Value Per Share (NAVPS) if referring to a non-REIT stock, is the current value of the security per unit listed in the market. How this is calculated is by taking all of the current assets of the REIT, minus away its liabilities, divided by its units outstanding in the stock market.

To put this in layman’s term, if an REIT has to sell all its properties, cash out on all of its investments and liquidate whatever other assets it has and after paying off all its liabilities, divide the outstanding money to its unitholders, this is the value of each unit. A higher NAVPU tend to usually mean a greater "value" of the REIT.

Meaningful: NAV per unit or share will tell you how much value the unit or stock is worth in the current market.

Passive investors can use NAVPU/NAVPS to determine if a unit/stock counter is overpriced or undervalued. It is indicated on the financial report under “Net Asset Value per Unit”.

Gearing Ratio (Debt-to-Asset Ratio / Debt Ratio)

As all REITs require heavy financing for their acquisitions and operations, the gearing ratio calculated is Debt-to-Asset ratio (or commonly known as Debt ratio), where the total debts is divided by the total assets multiplied by 100%.

All REITs can have a maximum of 60% of gearing only after having their credit rating given by Fitch, Moody’s, or Standard & Poor’s. Otherwise, they can only have a maximum of 35%.

Meaningful: Debt-to-Asset Ratio will tell you how much financial leverage the REIT or company has and is currently using.

Passive investors can use Debt-to-Asset ratio to determine if the company is having too much debts or borrowing heavily (especially if the ratio is greater than 100%). Different industry and sectors have different borrowing range. Use this to compare companies within the same sector to determine which have stronger positive cash flow. Gearing ratios are usually indicated in the presentation slides or press releases.

REIT Distribution Frequency

Ascendas REIT: Quarterly
AIMSAMPI REIT: Quarterly
Ascott REIT: Semi-Annually
Cache Logistics Trust: Quarterly
Cambridge Industrial Trust: Quarterly
CapitaCommercial Trust: Semi-Annually
CapitaMall Trust: Quarterly
CapitaRetail China Trust: Semi-Annually
CDL Hospitality Trust: Semi-Annually
First REIT: Quarterly
Fortune REIT: Semi-Annually
Frasers Commercial Trust: Semi-Annually
Frasers Centrepoint Trust: Quarterly
K-REIT Asia: Semi-Annually
Lippo-Mapletree Indonesia Retail Trust: Quarterly
Mapletree Logistics Trust: Quarterly
Mapletree Industrial Trust: Quarterly
ParkwayLife REIT: Quarterly
Saizen REIT: Unknown
Starhill Global REIT: Quarterly
Suntec REIT: Quarterly

For more REIT or Trust information, visit S-REIT Investor

Sources:
http://www.investopedia.com (Investopedia)
http://www.sgx.com (Singapore Exchange Ltd)
http://sreitinvestor.blogspot.com (S-REIT Investor)

Other Investor Concepts
[Investor Basics] Investing Concepts & Style
[Investor Basics] Technical Analysis Concepts

Last edited by Alphidius; 30-08-2011 at 02:42 PM..
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Old 31-10-2010, 07:00 PM   #2
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thanks. very useful.
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Old 31-10-2010, 10:16 PM   #3
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Mods..pls make this a sticky

Thanks!
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Old 01-11-2010, 02:24 PM   #4
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can i print this out and pin it up at my work desk? Very informative! Thanks!!
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Old 01-11-2010, 10:15 PM   #5
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Feel free to use the information!
These are just some concepts of Fundamental Analysis and is tip of the ice berg.
I see if I can write more articles if time & effort permits.

Last edited by Alphidius; 01-11-2010 at 10:25 PM..
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Old 04-11-2010, 08:47 AM   #6
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can explain what's these terms in red?

Counter Name Cde Rmk Last Chg % Vol BVol Buy Sell SVol Open High Low Value Sector

very chim
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Old 05-11-2010, 12:45 PM   #7
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can explain what's these terms in red?

Counter Name Cde Rmk Last Chg % Vol BVol Buy Sell SVol Open High Low Value Sector

very chim
Please read the [Investor Basics] Technical Analysis Concepts article.
I have included the information there under the section "Reading the Counter Details".
Hope it helps.
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Old 05-11-2010, 05:38 PM   #8
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Very informative
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Old 06-11-2010, 09:32 AM   #9
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Please read the [Investor Basics] Technical Analysis Concepts article.
I have included the information there under the section "Reading the Counter Details".
Hope it helps.
Thanks a lot
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Old 23-11-2010, 08:18 PM   #10
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I got a very curious question

Does volume affect the price of REIT?More volume = more trade. Less volume = less trade?

Another question. I took yr above and did some learning. Is the below correct? It seem to me the total distribution yield is must lesser than i thought an the Jan DPU seem wrong. My apology if i am wrong


Counter Name Code Volume(x000) Dividend Date Distribution Per Unit Price of Stock Per Unit(Closing) Distribution Yield %
Suntec REIT T82U 9528 1-Nov $0.02502 $1.51 1.66
Suntec REIT T82U 9528 30-Jul $0.02528 $1.43 1.77
Suntec REIT T82U 9528 3-May $0.02513 $1.35 1.86
Suntec REIT T82U 9529 29-Jan $0.00318 $1.30 0.24
Total Distribution Yield for the Year 2010 5.53
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Old 27-11-2010, 10:34 AM   #11
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tomleo, please see my replies in blue.

I got a very curious question

Does volume affect the price of REIT?More volume = more trade. Less volume = less trade?

Yes and no. Yes, more volume means more trade but the price can swing either ways. If high volume and price drop, means there's more supply than demand and there's fear going on for that stock. If high volume and price spike, means there's more demand than supply and people love this stock. High volume does not mean that the price will increase only, it might mean otherwise.

Another question. I took yr above and did some learning. Is the below correct? It seem to me the total distribution yield is must lesser than i thought an the Jan DPU seem wrong. My apology if i am wrong

Counter Name Code Volume(x000) Dividend Date Distribution Per Unit Price of Stock Per Unit(Closing) Distribution Yield %
Suntec REIT T82U 9528 1-Nov $0.02502 $1.51 1.66
Suntec REIT T82U 9528 30-Jul $0.02528 $1.43 1.77
Suntec REIT T82U 9528 3-May $0.02513 $1.35 1.86
Suntec REIT T82U 9529 29-Jan $0.00318 $1.30 0.24
Total Distribution Yield for the Year 2010 5.53

I have no idea where you got the distribution amount from but annual DPU of Suntec is roughly around $0.10. With the current price, the yield is roughly 6-7%. But yes, the yield has dropped slightly due to the issue of new shares due to a loan facility.
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Old 25-01-2011, 08:38 PM   #12
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So how do we calculate the amount of distribution one will be getting?
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Old 21-03-2011, 01:01 AM   #13
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So how do we calculate the amount of distribution one will be getting?
If you are asking "how do I calculate the current year's distribution I will be getting?".
The answer for the current FY (financial/fiscal year), the exact figure, no one knows.
You can only do your best by using last years' distribution as a Projected Distribution for the current FY.
To check the previous year's distributions or dividends, go to SGX site here
Select the company you want and click on "Go" to retrieve dividends, distributions, rights, etc... of the previous years.

If you are asking "how do I calculate the upcoming distribution I will be getting?" then the answer is simple.
  • First, find out how much distribution is being paid out per unit, this is usually in cents (eg. 1.5 cents)
  • Second, convert it into dollars (eg. 1.5 cents = $0.015)
  • Third, find out the number of units you hold (eg. 3 lots = 3000 units)
  • Fourth, multiply the converted distribution per unit with the total number of units you have ($0.015 x 3000 = $45)
The answer will be the amount you are going to get for the distribution.
Hope this helps.
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Old 22-03-2011, 11:36 PM   #14
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If you are asking "how do I calculate the current year's distribution I will be getting?".
The answer for the current FY (financial/fiscal year), the exact figure, no one knows.
You can only do your best by using last years' distribution as a Projected Distribution for the current FY.
To check the previous year's distributions or dividends, go to SGX site here
Select the company you want and click on "Go" to retrieve dividends, distributions, rights, etc... of the previous years.

If you are asking "how do I calculate the upcoming distribution I will be getting?" then the answer is simple.
  • First, find out how much distribution is being paid out per unit, this is usually in cents (eg. 1.5 cents)
  • Second, convert it into dollars (eg. 1.5 cents = $0.015)
  • Third, find out the number of units you hold (eg. 3 lots = 3000 units)
  • Fourth, multiply the converted distribution per unit with the total number of units you have ($0.015 x 3000 = $45)
The answer will be the amount you are going to get for the distribution.
Hope this helps.
ok.. thank you v. much..
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Old 21-04-2011, 06:39 PM   #15
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Hi Alphidius,

How do you derive the total annual DPU (distribution per unit)? Is it the amount of dividend that is paid out during book closure?

Thanks
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