This week will be the last of the 3
part series of the SREIT and I will attempt to teach how should an investor
learn to read a REIT presentation and pick up the key financial aspect of REIT.
I will attempt
to analyze the presentation of Capitacommercial Trust (CCT), to show how investors
should pay attention to some important aspect of REITs.
From Company's Presentation
First of
all, as mentioned in Part 1, we will look into the NAV of the REIT to
understand what is the true valuation of the REIT as per last valued. From
here, we can see that CCT's NAV is S$1.62, compared to its last Thursday
closing price of S$1.64, the stock is trading at a 1.2% premium
From Company's Presentation
1)
Occupancy Rate
Occupancy
rate is an important aspect of analysis, as it tell you what is the overall
utilization of the assets/properties. Obviously, the higher the better.
Nevertheless,
it is only fair that the occupancy is compared against the industry average as
it tells you how the REIT you invest in is performing against the industry
peers. An outperforming occupancy rate against the industry, obviously tell you
that the REIT managers are doing a good job in managing the asset.
From Company's Presentation
From the
diagram above, you can see that CCT has consistently been outperforming the
industry, demonstrating:
(1) the
resilient properties that they owned &
(2) the
better than average capability of its REIT manager in managing the asset
2) Trend of Rental
Note that
the revenue of a REIT is equal to (Occupancy Rate X Rental Charge), therefore
the trend of the rental is important, a decreasing rental trend shows that the
particular market is suffering, whereas a increasing rental trend shows a
upward momentum and will result in positive rental reversion for its revenue.
Again, CCT display strong momentum in its rental trend.
3) Tenant Mix
Tenant mix
is important as it tells you who are the main players renting the properties.
Obviously, you will want to rent your properties space to big and profitable
company rather than small and unprofitable company as (1) big company has more
staying power & (2) big company will represent better credit risk.
In
addition, a more diverse tenant mix will ensure that the properties is not rely
to any industry, thus less concentration risk
From Company's Presentation
4) WALE - Weighted Average Lease Expiry
4) WALE - Weighted Average Lease Expiry
WALE
stands for weighted average lease expiry. It shows you how long is your
properties rented.
At first
look, one will usually prefer a longer WALE. Nevertheless, it is more complex
than this. Obviously, in a rental declining market, you will prefer a longer
WALE as you locked in higher price for longer period when the market price is
declining.
However,
in a rental increasing market, a shorter WALE will be preferred so that you
will benefit from a higher rental reversion effect.
From Company's Presentation
5. Gearing Ratio
Gearing
Ratio is important. Obviously a higher gearing ratio means that the REIT has
not much ability to take on debt to grow while a too low gearing ratios means
the REIT is not aggressive enough.
Nevertheless,
I personally prefer a lower gearing ratio as a low geared REIT will have a
bigger room to grow via debt.
6) Dividend Yield
End of the
day, REIT investor are really interested in the yield that the property
generate. Thus like I mentioned, you will need to compared the yield it
provides relative to others. From below, you can see that CCT's distributable
yield of 5% continue to be attractive against a lot of other index.
From Company's Presentation
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