INVEST IN REITs BUILDING A GLOBAL PORTFOLIO OF PRIME REAL ESTATE BY PC WONG

INVEST IN REITs BUILDING A GLOBAL PORTFOLIO OF PRIME REAL ESTATE BY PC WONG

DISCLAIMER The views by the author are his alone. All opinions expressed by the author are subject to change. The viewer is not to assume the performance of any company shares will equal its past performance. Use of information contained in this presentation does not constitute any contractual relationship between the viewer and the author. The author hereby disclaims all responsibilities and liabilities for any use of information contained in this presentation. The author s risk assessment may differ from the viewer's. Risks are subject to economic uncertainties and market conditions. Viewers are advised to exercise due diligence and do their own assessment of the risks involved when investing in any company. Viewers shall not hold the author liable for investments which have gone sour. Do seek the advise of a financial advisor if you so require.

CHARACTERISTICS OF REITs REIT = Real Estate Investment Trust Assets which are backed by securities are called REITs The assets can be commercial or residential properties, infrastructure or transportation assets REITs are listed via IPOs and traded like any ordinary securities in the stock exchange REITs must distribute at least 90% of their net income to unitholders REITs gearing is regulated: Singapore < 35% < 60% if rated by S&P, Fitch, Moody s, etc Hong Kong < 40% Malaysia < 50% NOT AL REITs GEARING AND DISTRIBUTION ARE REGULATED

HOW DO REITs GAIN IN PRICE REITs assets are hard assets. As the value of hard assets gain, income from the rental of the hard assets will also gain. Any increase in the value of hard assets and income distributed to the unitholders will result in an increase in the REIT s unit price REITs acquired more assets More rental income Increase in distribution income Increase in price per unit

ATTRACTIVENESS OF REITs Steady income stream with yields above FD rate Appreciation in value over the long term as company accumulate new assets Low barrier of entry. You invest within your means High liquidity - easy to invest and exit Opportunity to own a piece of prime real estate in any parts of the world and participate in its growth story Most REITs are regulated, thus offering some measure of investment security Lower volatility vs stocks in times of turbulence REITs are ideal for new investors, retirees and middle income earners who wants to invest over the long term

REITs DISTRIBUTION INCOME & TAXATION FOR NON-CORPORATE ENTITY COUNTRY DISTRIBUTABLE TAXATION REMARKS INCOME TO QUALIFY MALAYSIA 90% 10% Withholding tax to individuals SINGAPORE 90% Individuals are exempted from tax HONG KONG 90% Individuals are exempted from tax JAPAN 90% 15.315% + 5% Withholding tax + local tax for non-resident individuals SOUTH KOREA 90% 22% Withholding tax for non-resident individuals AUSTRALIA Unspecified 30% Withholding tax for non-resident individuals UK 90% 20% Withholding tax to individuals CANADA Unspecified 25% Withoholdng tax to non-resident individuals US 90% 30% Withholding tax to individuals GERMANY 90% 26% Withholding tax to individuals FRANCE 85% 30% Withoholdng tax to non-resident individuals Source: www.pwc.com.sg

TYPES OF REITs IN THE MARKET Types of assets among REITs in the market - Shopping malls (Retail REIT) - Office blocks (Office REIT) - Warehouses and distribution centres (Logistic REIT) - Industrial Buildings (Industrial REIT) - Hospitals and healthcare centres (Healthcare REIT) - Hotels and resorts (Hospitality REIT) - Shop houses (Retail REIT) - Ships (Transportation REIT) - Campuses (Education REIT) - Toll highways, water and energy plants, broadband (Infrastructure REIT) - Mortgage REIT REITs which consist of several types of asset class are called Hybrid REITs

TYPES OF REITs IN THE MARKET Types of assets among REITs in the market - Shopping malls (Retail REIT) or Shop houses (Retail REIT) - Apartments (Residential REIT) - Office blocks (Office REIT) - Warehouses and distribution centres (Logistic REIT) - Industrial Buildings (Industrial REIT) - Hospitals and healthcare centres (Healthcare REIT) - Hotels and resorts (Hospitality REIT) - Ships (Transportation REIT) - Campuses (Education REIT) - Toll highways, water and energy plants, broadband (Infrastructure REIT) - Mortgage REIT REITs which consist of several types of asset class are called Hybrid REITs

Popular in US MORTGAGE REIT A Mortgage REIT borrows money from the market or issue new units, then with the capital raised, lend it out in the form of a mortgage Pay very high dividends but is extremely risky Make money from the spread between interest charged via debt issues vs interest earned from the mortgages Frequent raising of capital via new issues - results in dilution STAY AWAY FROM MORTGAGE REITs IF YOU ARE NOT FAMILIAR

TIPS IN SELECTING REITs Perpetual demand for properties driven by scarcity of land. Example: New York City, Hong Kong and Singapore Major cities with high population growth: Montreal, Melbourne, London, etc Major gateway to the greater continent or financial and transport hub. Examples: Hong Kong, Singapore, Frankfurt, London, etc Proximity to transportation hubs and ports. Ideal for REITs in warehousing and distribution centres Economies with strong tourism growth. Ideal for Hotel and Resorts REITs In a monopoly market or in a market with few major players such as infrastructure and energy Economies with good prospect for healthcare development due fast aging population and expanding middle class: China, India and Japan

STEPS IN SELECTING A REIT Go for the highest yield. Singapore and HK REITs are tax free. Whichever the choice must be more than current FD rate. Mortgage REITs in US offers high yields but are more risky Analyse the financials to ascertain the REIT s potential growth and financial strength to endure the ups and downs of an economy cycle Important to a have set of KPIs. KPIs should be based on your own risks assessment in the current economic environment Your set of KPIs is your acknowledgement and acceptance of the risk levels Benchmark the REIT with other similar REITs in the market The BUY decision is based upon the REITs fulfilment of the KPIs and out performance over the other REITs

APPLY THE M-A-R-K-E-T PRINCIPLES Measurement Assessment Research KPIs Execution Target

ANALYSING REGAL REIT FINANCIALS FY2014 vs 2013 Revenue HK$469,310M in 2014 vs HK$415,309M in 2013 Net Profit (with property gains) HK$319,609M in 2014 vs HK$335,408M in 2013 Net profit (without property gains) HK$245,645 in 2014 vs HK$210,615M in 2013 Current Assets HK$1,147,811M Non Current Assets HK$22,749,000M Total Assets HK$23,896,811M Current Liabilities HK$648,395M Long Term Borrowings HK$6,997,782M Other Non Current Liabilities HK$425,199M Total Liabilities HK$7,422,981M Total Equity HK$15,825,435M

IMPORTANT KPIs FOR A REIT Revenue Growth > 5% Net Profit Growth > 10% Distribution Yield > 5.5% Current Ratio (Current Assets/Current Liabilities) > 1.0-1.2 Gearing (Total Borrowings/Total Assets) < 0.35 Occupancy > 80% Rental Reversion (Conversion to New Rental Rates) > 10% Price to Book Ratio < 3x

REGAL REIT BENCHMARK AGAINST KPIs Revenue Growth +13.0% > 5% Net Profit Growth (with property gain) -4.7% > 10% Net Profit Growth (without property gain) +16.6% > 10% Distribution Yield 7.2% > 5.5% Current Ratio 1.77 > 1.0 1.2 Gearing 0.32 < 0.35 Occupancy 92.9% > 80% Rental Reversion NA > 10% Price to Book Ratio 0.45x < 3x

BENCHMARK vs SIMILAR REITs KPIs REGAL JAPAN HOTEL PEBBLEBROOK REIT REIT HOTEL TRUST Revenue Growth > 5% Yes Yes Yes Profit Growth > 10% No Yes Yes Distribution Yield After Tax > 5.5% Yes No No Current Ratio > 1.10-1.20 Yes No No Gearing Ratio < 0.35 Yes No Yes Occupancy Rate (Above 80%) Yes Yes Yes Unit Price vs NAVPU (Undervalued) Yes No No Regal REIT 6Y 1N Japan Hotel REIT 3Y 4N Pebblebrook Trust 4Y 3N Based on the KPI metrics above Regal REIT outperforms the other REITs

EXAMPLE OF CAPITARETAIL CHINA H1 2015 Revenue Growth +9.7% >5% Net Profit Growth (with property gain) -30.6% >10% Net profit Growth (without property gain) +74.5% >10% Distribution Yield 7.8% >5.5% Current Ratio 2.22 >1.0-1.2 Gearing 0.27 <0.35 Occupancy 95.0% >80% Rent Reversion 7.8% >10% Price to Book Ratio 0.84x <3x Note the Rent Reversion

Buying strategies: EXECUTION AND TARGET When new units are issued Before announcement of distribution Upon acquisition of assets REITs are ideal for long term holdings in order to realise 50% - 100% gain For example Axis REIT gained 133.1% over approximately 8 years or 16.6% returns annually Simon Property Group (US) gained 604.1% from 2009 till present including dividends. This is equivalent of 86.3% in annual returns

REITs INCENTIVES vs PHYSICAL PROPERTIES REITs PROPERTIES No down payment required May require down payment No loan required. You invest within your means Require loan to finance the purchase. High liquidity. Easy to enter and exit your investment. You get paid Long process to complete purchase. Even longer process and within days duration to exit. Could be many months before you finally get paid the full amount due to you Less risky in terms of financial commitment and in the event of More risky in terms of financial commitment in the event of escalating interest rates escalating interest rates Allows the average middle income earner to invest in prime real As an average middle income earner, your investment is limited to estates as a unitholder your level of affordbility and prime real estates could be priced beyond your reach

REITs INCENTIVES vs PHYSICAL PROPERTIES (CONT D) REITs PROPERTIES Properties are managed by professionals. Best rental is assured. You managed your own property, including paying the various bills You participate as an investor not as a caretaker of the property and making good any defects (caused by the tenant or due to normal wear and tear) No severe fall in revenue if a vacancy occurs as long as the You will not earn anything if your property becomes vacant or overall occupancy remains healthy when the tenant terminates the rental early Steady income stream is ensured. Income is unencumbered Rental income needs to be set off against the monthly loan instalment Capital appreciation at gradual pace when the company increases its assets base and earning capacity Capital appreciation subject to market speculation and sentiment

A REIT REINVESTMENT SCHEME DISTRIBUTION AT 7.0% PER ANNUM + 3.0% FD RM50,000 over 30 year period Total returns 328.7% Annual returns 11.0% If REIT increase in price at 2.5% per annum Total returns 433.4% Annual returns 14.4%

A REIT REINVESTMENT SCHEME DISTRIBUTION AT 7.0% + REINVESTMENT INTO SIMILAR REIT RM50,000 over 30 year period Total returns 661.2% Annual returns 22.0% If REIT increase in price at 2.5% per annum Total returns 942.8% Annual returns 31.4%

BEST REITs Singapore and HK listed REITs: Superior returns due to tax free nature Superior current and gearing ratio Less reliance of debt to fund distribution and share buy backs Paying a distribution within their means and not exceeding the net income

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GLIMPSE OF GAINS AS AT 8 JULY, 2016 INVESTFOREIGNSHARE.COM COACHING BUY NOW China Toll Operator (Sep 15 Pick) HK$3.75 HK$3.93 + HK$0.42 Div 14.4% up Aussie Gold Miner (Sep 15 Pick) A$0.92 A$3.55 285.9% up US Gold Miner (Oct 15 Pick) US$7.50 US$22.32 197.6% up US Silver Miner (Dec 15 Pick) US$6.49 US$18.36 182.9% up Precious Metal ETF (Jan 16 Pick) US$10.40 US$13.18 26.7% up EU & US Toll Operator (Jan 16 Pick) A$4.13 A$5.39 30.5% up China Dairy Co (Feb 16 Pick) HK$11.06 HK$13.08 18.3% up Junior Miner ETF (Mar 16 Pick) US$28.47 US$49.41 73.6% up Miner ETF (Mar 16 Pick) US$27.83 US$48.97 76.0% up US Silver Miner (Apr 16 Pick) US$9.52 US$15.97 67.8% up

THANK YOU! PC WONG

Q & A