Monday, April 9, 2018

Book Review: Building wealth through REITS by Bobby Jayaraman

I decided to read this book because I was interested to find out how the perspectives of the REIT managers were like when it was written in 2011. It is very easy to read, not many financial technical terms, and is very suitable for a REIT investor wannabe.

The first half of the book is the theory, which you will find boring if you already know how to read the items in the financial statements and fairly standard ratios. Nonetheless I learnt about perspectives. For example, when someone tells you to focus on the Net Property Income (NPI) of the REIT, it actually refers to the NPI as an amount, but what the analyst uses is the growth % of the NPI. For me, I prefer to use my version of NPI where I exclude the valuation gains but include other losses, so that I get an even lower value.

Two REITs stood out for me -- Saizen REIT and Capitaland Mall Trust. Saizen has been delisted, and I didn't know its history until I read this book. If I had known, I may have bought it. It was actually a set of distressed residential properties being bought over by investors when a Hokkaido bank went bankrupt between 1999 to 2000. These investors cashed out of their investments in 2007 via an Saizen REIT IPO. Such opportunities happen once in a blue moon for the folks who have the cash.

The history of Capitaland Mall Trust was also interesting because it explained the high valuation gains. The properties were bought from the parent Capitaland in 2002 at relatively lower prices. Over the years, they sold off the under-performing properties too. I never really thought about it that way, and by the same yard stick, Keppel REIT should have a high valuation gain too because they were created around the same time. I will probably pay more attention to this when I review Keppel REIT again.

One recurring theme discussed in the REIT managers' interviews is to only buy the property when the price is good. This can be either in the form of buying an old building at a good location and then renovating it, or to buy multiple properties located at good population catchment areas to leverage on a single management team to save on cost. This concept can be applied to anything, even hiring people for a job, but it's probably easy to say but difficult to execute because you need to be have the skill and foresight to know how to transform less desirable properties into desirable properties.

Although the market sentiment in 2011 was one where people were quite fearful of another crash given the fresh memories of the financial crisis and continued war in Iraq, anyone who had bought at 2011 prices would have profited today too.

Overall, the book reinforces my belief that any investment is good at a yield-accretive price. Patience will pay you eventually.