Forecasting IPO Results

Ser Jing - Why Investors Shouldn't Trust Predictions (pic) Whenever a company is going to go public, an initial public offering (IPO) prospectus is released by the company. The prospectus consists of the overview of the company, market and industry information, risk factors, among others. Ror real estate investment trusts (REITs) IPOs, it will also consist of forecast figures for the next financial year. These forecast figures are needed to compute the forecasted distribution yield that investors will get if they subscribe for the IPO.

On 27th August 2012, Far East Hospitality Trust (SGX: Q5T), or Far East H-Trust for short, went public. In the press release for its second quarter of 2013 (2QFY13) results released last week, the company compared its latest figures for 2QFY13 with the IPO forecast. Let’s take a look at the numbers.

IPO forecasts 1

(Source: Far East H-Trust’s SGX announcement)

The forecasted gross revenue was off the actual revenue by 7.9%, while forecasted DPS was off the actual DPS by 4.7%.

Let’s take a look at another trust that went public – Ascendas Hospitality Trust (SGX: Q1P) or Ascendas H-Trust for short – just a month earlier than Far East H-Trust on 27th July 2012. It released its results for first quarter of 2013 (1Q FY2013/14) on the same day as Far East H-Trust. It seems like the forecasters for Ascendas H-Trust fared worse.

IPO Forecasts 2

(Source: Ascendas H-Trust’s SGX announcement)

The gross revenue was off by 10.8% and the distribution per unit was way off by 12.3%.

Recently, two trusts went public and they are SPH REIT (SGX: SK6U) and OUE Hospitality Trust (SGX: SK7). They too released forecasts in their IPO prospectus as seen from here and here respectively. The forecast for SPH REIT can be seen on Page 47 and that for OUE H-Trust can be seen on Page 55.

Investors might want to keep a lookout for the first earnings release for SPH REIT and OUT H-Trust and see if the two newly launched REITs have trounced Far East H-Trust and Ascendas H-Trust in terms of forecasting.

Foolish Take-away

We should always take forecasting with a pinch of salt. Investors should not invest based solely on rosy forecasts. It is not easy to forecast accurately. Be prudent, invest diligently!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.