Coming back to REITs.... It is my personal belief that 2009 will witness the liquidation of 1-2 poor quality REITs. REITs with parent companies backing them, ie Frasers, Mapletree and Capitaland will survive this long winter. BUT REITs without strong sponsors will face extreme difficulties in refinancing their loans. Forget about those PR statements issued by the 3 local banks who said they will continue to lend monies... All these are PR talks. The REITs are really facing difficulties in refinancing the debts. I have friends in the commercial banking line who have been given specific instructions NOT to get new clients and to control budgets in 2009. These actions are done to improve the balance sheets of the banks so that they can receive higher credit ratings from the international agencies. End of the day, it is up to the investors how much faith they can put in these REITs\' management. For me, I keep my money safely under my pillow everynight, in my old grandmother\'s khong guan tin can. :laugh: :laugh:
We have seen quite a few REITs successfully re-financed their loans for 2009. I must confessed that Cambridge REIT\'s refinancing was a big surprise to me, especially given the fact that they are an industrial REIT. Most of the manufacturing companies are facing big problems with their cashflows and I was surprised to see the bank was so gungho to refinance them at only 6.6%. There should be more drama unfolding as the crisis deepens. Expect the unexpected. :blink: :blink:
I read an article in THE EDGE which mentioned that the REIT managers are lobbying for a cut in the dividends distribution. They are looking to cut the ratio from the current 90% to maybe 60% or 50%. This is ridiculous. This is equivalent to using shareholders\' values to resuce the jobs of these REIT managers who have gone out to buy inflated properties over the past 2 years and are now trying to find loopholes to protect the amount of assets under their management. To All REIT shareholders out there, I urge you to use your presence to query these managers during the results briefings an AGM that are coming up soon. By cutting the ratio of dividend distributions, the managers are using your money to maintain the assets that they are managing so that their own management fees would not be cut. If this happens in the West, the managers would have been sacked long time ago for failing to meet their KPIs. A correct way to do, is to sell of assets to maintain the dividends payout that the REIT has been paying all these while. Dispose of those inflated assets, clean up the balance sheet. If necessary, bring in more capable REIT managers who know when to buy good properties at reasonable prices and not follow the herd. If US government can let bad investment banks fail, it is time that the Singapore government take note and let poorly managed REITs fail.
Property sector needs govt help in refinancing $12b of debt By Joyce Teo THE Government has been asked to help listed property firms here, especially real estate investment trusts (Reits), to refinance an estimated $12 billion in debt, given the frozen state of credit markets. The appeal comes from the Singapore-based Asian Public Real Estate Association (Aprea), a body set up to represent the listed real estate sector in Asia. \'Government assistance is needed to get liquidity moving and reduce the risk of plummeting real estate values and pressure on the capital positions of lenders,\' said a background paper by Aprea. \'Its help is needed to restart the credit markets for commercial real estate debt.\' \'This is an issue for the general commercial real estate market and, by extension, the broader real estate market and the broader economy,\' said its chief executive Peter Mitchell yesterday. Aprea has been submitting a series of proposals since last November to regulators in Singapore and Japan, seeking assistance in these unusual times, he said. One assistance option would be a lending facility being implemented in Australia, said Aprea. The country announced a A$4 billion (S$3.86 billion) fund with four Australian banks to support lending in the commercial property sector. The Singapore Government has unveiled measures to free credit to businesses here but nothing specifically aimed at listed real estate entities. Inability to raise credit and refinance could lead to foreclosures, bankruptcies and forced sales, leading to market instability and a potential downward spiral, the paper said. \'The more that real estate loans can\'t get refinanced, the more risk there will be of losses for the banks, some of which can ill afford more losses. \'Banks\' jobs are to make loans, not own real estate. There is a risk that banks will not be able to absorb, manage and turn around properties at this scale if they come back to the lenders,\' it said. \'The collapse of an otherwise healthy real estate market caused by general credit paralysis has the potential to significantly aggravate recessionary pressures.\' There is a risk of default being forced upon property owners that hold property with good cashflows, a risk that would not exist in a normally functioning credit market, it said. The current negligible activity in commercial real estate market is a particular issue for Reits, which the paper described as a \'handle with care\' product. Ratings agencies are talking about downgrading Singapore Reits because of refinancing concerns. But it is because of the dysfunctional credit environment and should not happen, said Mr Mitchell. \'It is not the Reits themselves having problems. They are just being impacted by the freezing of credit.\' Of the estimated $12 billion of refinancing needs this year, one-third is attributed to Reits. It is important to help Reits through the turmoil as they are what will attract investors as Singapore moves out of this downturn, he said. \'Investors are going to be risk-averse and will look for things that are liquid, transparent and lowly geared, equity-oriented investment. That\'s what Reits are.\'
REITs should be treated like any other listed entities. Why should REITs be given special privileges? REIT managers usually squeeze the shopowners so hard during the boom time. In times of crisis, they should also bite the bullet and sell of those inflated assets that they acquired over the past 2 years. These REIT managers were chasing up the commercial, industrial properties\' prices and forcing shopowners to accept 50% jump in rental. I have a friend who runs his boutique shop in one of the leading shopping malls for over 8 years. In late 2007, the management of that mall told my friend to prepare for a 70% jump in rental rates or be prepared to pack up and go. Sure, business was good in 2007, but not to the extent that it can justify a 70% jump in rental overnight. Fate has it that my friend has the last laugh as he found a cheaper location in the suburban and many heartlanders are going to his shop instead of the Orchard Road belt now.
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