CPNRF fund, I say switch into the TFUND
CPNRF fund, I would switch into the TFUND.
I did some more checking on CPNRF (11.2) which I now rate a ""switch into TFUND (9.95).
The below is further analysis to my recent article on "not all REIT"s funds are created equal".
I was told that on Rama lll, CPN (which owns 33% of CPNRF) has agreed to renew the leases at the expiration of the first 30-year term (and the second) for "no further consideration". If this is truly the case, then I feel that this should have been stated in the prospectus, and the appraisers could assume an effective 90-year term (i.e. almost as valuable as a freehold). However, I am not yet totally convinced that such a commitment has been given. (Note that the prospectus is published only in the Thai language).
On their Rama ll property (where most of the value lies), my good sources confirm that there is "no right to renew at the end of the 20 year term", and stated that the reversion is held by a number of parties. They so acknowledged that the value of the lease will need to be written down on "future revaluations", but claim that in the immediate future the value of the lease is likely to actually increase through higher occupancy and higher rental rates. They feel that the overall reduction in capital value will not impact for about 10 years, i.e. half the life of the lease, but I feel that this could/must happen well before that.
One person I am close to spoke to a couple of valuers about this fund, and one evidently referred to it as "crap" and the other "scandalous". The first, though, made the valid point that we should not regard these leasehold funds as long-term funds with capital preservation/appreciation potential, but rather as just buying/investing in a future income stream. But I dare to ask: how many investors are really aware of the nature of these leasehold funds? Most investor think of it as an asset held in perpetuity.
Clearly CPN intends to grow the fund with further sales of shopping centers in the future, and these will possibly be of the same leasehold nature? By growing the fund with initially high net yielding new leaseholds, this would reduce the overall effect of the capital write-downs across the fund, but this would merely obscure the write-downs which would need to be made one day.
I am a bit disappointed in CPNRF, as I thought that this would be a good one, and that the size and Central Patana name would so help promote REIT"s in a good light. Certainly it has had a good IPO launch and is trading very well; but I see the leasehold structure of Rama ll to be a major flaw which I think is not understood in the market place. One real positive is that the TFUND owns its factories and so is clearly a superior fund in my view. Besides the current dividend yield is higher based on recent market prices -and there are no leaseholds issues. This shows again why smaller is often far more rewarding here on the SET.
I also saw some odd announcement that the Thai government itself might do a real estate fund (REIT)? Also there was a great piece on these REIT in the BKK post "your money", back page of the Bus. section, just a few days ago. Its about time.
There are many, many Thai investors out there which are desperately seeking high current yield along with diversity and safety of capital. These REIT"s should be a clear choice -but not if its rarely well explained and on top if the biggest of all, is actually a bit of a "ticking time bomb" -with leases actually expiring 20 years down the road and or where the renewal terms are not clear, or some even absent. In my own view.
Best Regards,
Paul A. Renaud.
