In Reits we trust?

 A report card on the performance of various types of trusts listed in Singapore shows that Reits remain the best bets. 

 Mon, Apr 11, 2011
 The Business Times 
By Teh Hooi Ling
SENIOR CORRESPONDENT

A FEW weeks back, I was having dinner with some colleagues, one of whom is from The Straits Times when a colleague from Lianhe Zaobao walked past. We started chatting, and the topic naturally veered towards the stock market, given that we are all business writers.

The Straits Times colleague asked the Zaobao colleague what she thought of Hutchison Port Holdings (HPH), whose initial public offering was about to close then. Instead of directly answering the question, the Zaobao colleague said: 'CitySpring is now trading at half its IPO price!'

The Straits Times colleague interpreted the comment as negative for HPH. 'She's saying don't buy, that the new IPO may suffer a similar fate as that of CitySpring,' he said. Then, our marketing colleague sheepishly admitted that he has CitySpring in his portfolio. I didn't own up at the time, but I too had CitySpring languishing somewhere in my portfolio.

The conversation set me thinking. Has CitySpring done that badly if we take into consideration all the dividends paid out since its IPO?

How about the other investment trusts? We've had a number of property investment trusts, shipping trusts and business trusts listed on the Singapore Exchange. In general, how have they done since IPO, in absolute terms, and relative to the broad market movement?

So I decided to find out. Basically, I obtained from Bloomberg the total return for each of the trust relative to their IPO price. Bloomberg assumes that all dividends received are reinvested back into the security.

Also, the Bloomberg program can only calculate total return up to a certain number of days. So, for Reits that were listed before 2005, I had to switch to the weekly return numbers. Hence, the returns for Reits such as Ascendas, CapitaMall, CapitaCommercial, Suntec and Fortune are calculated based on the closing price on the first Friday after they started trading, and not the IPO price.

Here's what I found. Of all the various types of trusts, the real estate investment trust (Reit) has been the most successful. The performance of shipping trusts and other forms of business trusts have generally been rather dismal.

And among the Reits, those with Singapore-based properties have on the whole performed better than those with overseas properties.

So which has been the most successful Reit to date? Excluding those with trading records of less than one year, CDL Hospitality Trust appears to be the star. Since July 18, 2006, it has returned 225 per cent to its unitholders. That's an equivalent of 28.5 per cent a year, and it outperformed the FTSE Straits Times All Shares Index by a whopping 198 percentage points during that period.

First Reit, which owns hospitals and hotels in Indonesia and Singapore, is the second-best performer with a return of 20 per cent a year. Both were listed in 2006.

The first batch of Reits to hit the market also fared well. Ascendas Reit rewarded investors with return in excess of 17 per cent a year since 2002 - that's a near 10-year record. CapitaMall Trust, meanwhile, returned 16 per cent a year, outpacing the general market by more than 170 percentage points.

Earning the dubious honour as the worst Reit to have listed on the Singapore Exchange is Saizen, which owns residential properties in Japan. It is now 78 per cent below its IPO price, and after taking into consideration its distribution, investors have seen their capital getting shaved by 33 per cent a year since November 2007. It underperformed the general market by 66 percentage points.

AIMS AMP Capital Industrial Reit, formerly known as MacarthurCook Industrial Reit, is the second-worst Reit. It has lost 72 per cent of its share price, or the equivalent of 17 per cent a year after dividend since 2007. It trailed the general market by 37 percentage points.

The median return of all the Reits listed on SGX since their IPOs up till end-March 2011 is 8.9 per cent a year. That's a return not to be sniffed at. Reits which bombed tended to have high gearing, so that's a good metric to start one's screening process.

As at this week, the average yield for all the Reits listed in Singapore is 7 per cent. There's a website - http://reitdata.com/ - which provides a comprehensive and updated listing of all the reits and business trusts in Singapore.

Meanwhile, the performance of the other two types of trusts - shipping and business or infrastructure trusts - leaves very much to be desired. On average, the three shipping trusts - Pacific Shipping Trust, FSL Trust and Rickmers - have seen their unit price slumped by 56 per cent since their IPO. Only the distributions from Pacific Shipping Trust has more than made up for the capital loss.

Investors who bought into Pacific Shipping Trust are still better off than leaving their money in the bank, or buying into the general Singapore market. The trust returned 7.43 per cent a year since May 2006. It outperformed the FTSE All Shares Index by 17.5 percentage points.

No such luck for holders of FSL and Rickmers. Investors in the two suffered a loss of 14 per cent and 20 per cent a year respectively since 2007 when they were listed.

As for the other business trusts, the performance in general has also been lacklustre. The average annual return is -18.9 per cent a year. The average is dragged down by Indiabulls Properties Investment Trust which has seen its unit price slump 70 per cent since its listing in July 2008.

The best performer in this category is Ascendas India Trust - with an annual return of 2.3 per cent a year since 2007.

What about CitySpring? Well, what do you know - after taking in all its distributions, investors are actually up by 1.4 per cent a year. That's an outperformance of 14.5 per cent over the FTSE All Shares Index between February 2007 and end-March 2011.

From the report card above, on the whole, it appears that of the various types of trusts, Reits remain the best bets. There seems to be a lot more uncertainties associated with the other forms of trusts.

-The writer is a CFA charterholder