06/2022
The month passed saw US Office REITS, namely Manulife REIT, Prime REIT and Keppel Oak Pacific REIT, crashed to new lows despite optimistic buy reports from analysts and the media.
Are they essentially evolving or have evolved to become Value Traps?
Why do they continue to trade at low multiples in terms of DPU Yield and book values?
Have US Office REITS underperformed for such a long period of time opening the door to a value trap? Or are they already Value Traps?
Have US Office REITS “over-promised” but “under-delivered”, a key trait of Value Traps?
At GCP Global REIT classes, we have consistently forewarned and highlighted to GCP Global student investors to STAY AWAY and AVOID such REITs. Why have we been so accurate?
What is a Value Trap?
According to Investopedia, a value trap is a REIT or stock that appears to be cheaply priced because it has been trading at low valuation metrics, such as DPU Yield and severe discounts to the NAV or book value for an extended period of time.
A value trap can attract investors who are looking for a bargain (not surprisingly that almost all brokers covering these REITS have been calling a BUY, some for quite some time now, while GCP Global has been steadfast in our Avoidance of these US Office REITS, for some years now) because they seem inexpensive relative to historical valuation or relative to their industry peers.
What is the Danger in a Value Trap?
The clear and present danger presents itself when the REIT or stocks continues to languish or drop further after an investor buys into the REIT or stock.
Are US Office REITS Value Traps as their stock price continued to languish or drop further?
Table 1 shows the horrendous underperformance of US Office REITS for an extended period of time – 2 years 5 months to be exact as at 31 May 2022. For the longest time, we have forewarned and highlighted to GCP Global student investors to STAY AWAY and AVOID such REITs. Why have we been prescient in this call?
Why do US Office REITS continue to trade at low multiples in terms of DPU Yield and book values?
Table 2 above shows the “very attractive valuations” that continue to attract market analysts that based their BUY reports on such metrics. The mantra seems to be – “DPU Yields are approaching 10%, so it is very attractive”. They forgot that not too long ago, their mantra was - DPU Yields are approaching 8%, so it is very attractive”. Thereafter, the share prices dropped further.
For instance, Prime REIT trades at close to almost 10% DPU yield, one of the highest in the REIT market. Yet, at GCP Global, we have identified them as Value Traps way before they became one. Join us for our next REIT class on 13 Aug 2022 as we identify for other REITS that may become Value Traps.
In terms of Book Value or Net Tangible Asset, all 3 REITs trade a discount despite the latest guidance at 1Q2022 Business Updates on rising occupancies for their respective properties.
Have US Office REITS underperformed for an extended period of time opening the door to a value trap? Or are they already Value Traps?
Table 3 - Manulife REIT has spent almost 90% of its trading time BELOW its IPO price in the past 2 years 5 months now since the Covid-19 sell off. It has yet to reclaim its previous high of $1.07 or even come close to within 20% of its previous high!
Take Manulife as an example. Table 3 shows the price performance of Manulife since its IPO on 12th May 2016 at US$0.83.
Manulife REIT price stayed above its IPO price for almost a year in 2H2017 and 1H2018 when the overall REIT market was enjoying its bullish phase as the Federal Reserve raised interest rates by only 3 times in 2017, below market expectations. However, it tanked below its IPO price and closed 2018 at 77 cents, down 19.79% on a year-on-year basis. This hugely underperformed the FTSE REIT Index which fell from 855.88 to 777.45, a drop of 78.43 points or 9.16%.
This began the 1st year of underperformance whereupon we had forewarned on Manulife REIT and explained in detail in Chapter 6 of our REITS Best Seller – “Making Your Millions in REITS”. In the Chapter, we had deep dived into Manulife REIT, examining the key fundamentals and metrics at the turning points, as we have examined them in real time in our GCP Global Quarterly REITS classes, the next of which is 13 Aug 2022.
Thereafter, Manulife REIT price recovered in 2019, in line with the REIT market and ended 2019 at $1.00. The price managed to inch upwards to $1.07 on 6th Feb 2020 before plunging a record $0.515 or 48.13% to 55.5 cents on 23 Mar 2020 during the Covid-19 sell off. Shareholders of Manulife REIT must have felt like a train wreck and the end of the world during this period. Whilst all REITS fell during the rapid Covid-19 pandemic sell-off of 19 Feb 2020 to 23 Mar 2022, it is CLEAR that –
1. The worst REITS fell the most compared to the better REITS
2. The better REITS recovered the fastest
3. The worst REITS took the longest time to recover
4. Some of the worst REITS never recovered to the pre-pandemic prices
Ever since, Manulife REIT has spent almost 90% of its trading time BELOW its IPO price in the past 2 years 5 months now. It has yet to reclaim its previous high of $1.07 or even come close to within 20% of its previous high!
All-in-all, Manulife REIT share price has spent almost 60% of its trading period since its IPO on 12th May 2016 at below its IPO price of US$0.83. So, is it a classic Value Trap?
Have US Office REITS “over-promised” but “under-delivered”, a key trait of Value Traps?
We will answer and explain the above question, elaborate on the previous 3 questions as we help investors identify Value Traps in REITS in our upcoming Live (yes, we are resuming Live again) Quarterly REITS class on 13 Aug 2022 at the prestigious C-Suites at PLQ.
At GCP Global REIT classes, we have consistently forewarned and highlighted to GCP Global student investors to STAY AWAY and AVOID such Value Trap REITs. Making your millions in REITS is not difficult, as I have done so. However, avoiding Value Trap REITS is a key integral part of the process.
For more of which REITs that a sagacious REIT investor should have and should not have in their investment portfolios, do join us on our next upcoming Quarterly REITS class entitled “BUYING THE BOTTOM IN REITS AFTER THE BRUTAL SELL-OFF” on 13 Aug 2022. SIGN UP HERE Knowing how to side-step and avoid those REITS that will underperform is probably more important than knowing which REITs to pick in Making your millions in REITs. Join us to learn just that.
OUR LATEST MEDIA INTERVIEW ON REITS, TECHNOLOGY & DISRUPTOR INNOVATORS – BETTER INVESTOR EDUCATION AND PROTECTION FOR A THRIVING REIT MARKET – 26 May 2022, BUSINESS TIMES
1. FOCUS ON ROIC & EV/EBITA TO EVALUATE REIT MERGERS & ACQUISITIONS – 17 Mar 2020, BUSINESS TIMES
2. TOO MANY REITS S-REITS MAKING CASH CALLS THAT DON’T ADD VALUE FOR UNITHOLDERS – 16 Mar 2022, BUSINESS TIMES INTERVIEW
https://www.linkedin.com/posts/gabriel-yap-8745b822_our-business-times-interview-today-in-activity-6909691754426351616-qA2Z?utm_source=linkedin_share&utm_medium=member_desktop_web
3. FIGHT HOTS UP FOR LOGISTICS ASSETS – 24 Nov 2021, BUSINESS TIMES INTERVIEW
5. CHINA REITS COULD GIVE S-REITS SOME COMPETITION – 21 Jun 2021, BUSINESS TIMES INTERVIEW
6. IMPACT OF CHINA REITs ON S-REITs – 14 Jun 2021, LianHe Zaobao
7. WISDOM EYE ON BUSINESS – 25 May 2021, Wisma Geylang Serai, South East Community Development Council of Singapore
8. BOTTOM FISH FOR TECH & CHINA TECH – 25 Apr 2021, BUSINESS TECH ASIA
9. HOW DO INVESTORS SPOT REIT MERGERS THAT DESTROY VALUE? – 19 Apr 2021, PRIME TIME MONEY FM89.3
10. MAINLAND INVESTORS FLOCK TO S-REITS – 26 Apr 2021, LIAN HE ZAOBAO
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AUTHOR OF MAKING YOUR MILLIONS IN REITS
CHAIRMAN OF JUDGING PANEL FOR THE ASIAN REITS PINNACLE AWARDS 2016 & 2017
HOST OF THE FUTURE OF REITS FORUM, 2016
JUDGE FOR SINGAPORE CORPORATE AWARDS – BEST REITS INVESTOR RELATIONS 2017
HOST FOR SINGAPORE CORPORATE AWARDS – BEST REITS INVESTOR RELATIONS 2019