Ascendas India Trust (AIT) is an interesting Real Estate Investment Trust (REIT) listed in August 2007. What interest me to look at the total return of AIT and its internal rate of return (IRR) over the last 7.5 years is of its unique profile in a country where its currency have been depreciating against the home currency.
AIT was listed in Aug 2007 at $1.18.
The price reached a high of more than $1.60 after listing before eventually plunging to $0.40. Since then it recovered to $1.00 and have been fluctuating below that. The current share price is $0.86.
AIT started off relatively lowly geared and even today its net debt to asset is 22%,, which is much lower than majority of the REITs.
One of the important criteria for REITs is the quality of the manager, and if you assess the performance of AIT over the years, you can see that the net property income rising since IPO, doubling since 7.5 years ago.
This is great considering that AIT did not undertaken a single rights issue since IPO unlike many of its peers. Majority of the growth is organic, with some optimization of its portfolio over the years.
Yet, the dividends per share over the years have been trending down until the past year.
The reason for that is since IPO the Indian Rupee have been weakening against the Singapore dollar until recent 2 years.
So if you are an investor in AIt at IPO and have put in $1000 then, you would face the prospect of:
- Capital Loss as share price below that of IPO price
- Dividends per share becoming smaller and smaller
- Weakening currency
Given all this, AIT must be a rather weak investment.
The above table shows what if Kyith puts in $1180 during IPO and received every dividends since that time.
Firstly, Kyith will be suffering a loss of 27.12%. That is substantial. However, throughout this 7.5 years, Kyith has collected a dividend totaled 42.8%.
The net total return would be 16.74%.
The total return only tells us whether Kyith is making or losing money since putting in the money in Aug 2007. It doesn’t tell us: Is Kyith right to put his money in AIT over this 7.5 years or is it better for him to put in another wealth asset?
For that we need to compute the XIRR, which takes into account:
- the positive and negative cash flow put in during this period
- the date and duration of these cash flow, how long these cash flow was put to work
- the time factor over this period where it could be inflationary
In the table above, we put in the date of each cash flow. An investment into AIT is treated as a negative while a dividend receive is a positive. At the end, which is today, we assume we sold AIT at current market price ($0.86)
The XIRR derive is 2.19%.
This means that Kyith’s $1180 investment yields 2.19%/yr for the past 7.5 years if he sold it today. This is low by REIT standard, and perhaps is not a good return for the risk you subject your capital to.
Given the risk of permanent capital loss, this XIRR allows Kyith to compare against:
- the return of STI ETF over this 7.5 years
- the bank deposit interest of 0.25%/yr
- the insurance endowments of 2.5%/yr – 3.5%/yr (read my article on past insurance endowment returns)
- other REIT and business trust returns
XIRR is useful as it provides a common denominator for investors to compare, removing the different nature of each wealth assets.
On hindsight, perhaps an insurance endowment isn’t that bad.
What if AIT was purchased at a relatively lower price?
One thing I notice is that here, Kyith purchased AIT at IPO and we know that when property owners raised money, they want the best price. AIT was IPOed at a high.
What happens if Kyith bought AIT at $0.90 instead of $1.18?
The XIRR looks a respectable 6.54%.
Not as great as other REITs, but a return that many would appreciate over insurance endowments or bonds.
What if we dollar cost average and invest $12,000/yr into Ascendas India Trust?
Here is an update on 24th Mar 2016.
I decide to append what would happen if instead of a lump sum investment, we invest over a period of time.
This will be the scenario that you want a diversified portfolio of India properties and decide to save your money monthly and contribute once a year with $12,000. This will be more similar to compare the XIRR of this investment versus if you purchase an insurance savings endowment yielding an XIRR of 2.5% to 3%/yr.
We take it that you will pay a $30 purchase commission for each annual purchase.
We call this investor A. He will contribute a total of $96,238 over a period of 7.4 years:
- Dec 2008: $12,029 @ $0.44
- Dec 2009: $12,029 @ $0.98
- Dec 2010: $12,029 @ $0.93
- Dec 2011: $12,029 @ $0.69
- Dec 2012: $12,029 @ $0.75
- Dec 2013: $12,029 @ $0.68
- Dec 2014: $12,029 @ $0.82
- Dec 2015: $12,029 @ $0.87
So how is the XIRR?
An astounding 11.97%/yr!
This is remarkable consider, while the time frame is slightly shorter than from IPO till start 2016, they still have the same falling rupee issue.
Majority of the units were collected at below the end simulation price of $0.86, with the dividend payout dwindling over the years.
This is a stark contrast to if you had put in a lump sum of $100,000 in IPO at $1.18 where you would have gotten 2.19% XIRR. To be fair if you have put in a lump sum of $100,000 at the start of this DCA simulation at $0.44, your XIRR would look very very different as well.
AIT’s past results is not bad, if you consider the poor currency performance. Investors in Religare HT, Croesus, IREIT should see this and be prepared that the same possibility may await your investment.
However, this does reinforced some of the criteria of REIT selection for buy and hold:
- Good Manager is still one of the more important criterion consider property assets are dead but it is the manager that provides the performance with their acquisition, divestment, debt and interest risk management, filling occupancy with good tenants
- Value a REIT well and do not overpay for it. The same AIT looks a much better investment despite the falling DPU when you do not overpay for it.
- Long tenant lease provides predictability in dividends per share, consistent rental escalation built in, and so the stock are likely to trade at a higher valuation compared to peers
- Economic Situation is more important than Interest Rate risk. The future prospects of the operating location is important
- Freehold is preferred over Leasehold but not the most important criterion
The new update that shows what would happen if you dollar cost average instead of a lump sum investment lets us know that valuation plays a very important role. The dollar cost average allows the investor to collect Ascendas Inda not at a very expensive price such as IPO price but at a lot of cheaper prices.
REITs can be good investment instruments but a lot of the axioms of investing still applies here.
The past review of REITs can be viewed here:
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