11/2018
The month of October that just passed is indeed good riddance for many investors – Singapore stocks lost a total of $53.2 billion or 5.7% of their value as the FTSTI Index plunged 238.25 points or 7.31% to close just above 3,000 points at 3,018.80.
The month also brought out the defensiveness in SREITS – SREITS lost just 38.04 points or 4.74% to close at 764.93 on the FTSE Reit Index, once again outperforming the FTSTI Index, albeit on the downside.
The current correction draws similar parallels to the Taper Tantrums on 23rd May 2013 which saw SREITS whipped 17.18% and took 87 market days to recover. In 2013 then, the market saw a sudden shift from a view that interest rates would remain low indefinitely to prospects of higher interest rates. SREITS eventually rebounded as interest rates remained benign.
In contrast, the current faster-than-expected economic growth is causing a return of inflation, resulting in higher interest rates. The US Fed has already raised rates 3 times this year to 2 -2.25% while the SIBOR has climbed correspondingly from 1.8% in Jan 2018 to 2.6% presently.
Not surprisingly therefore, SREITS continued its correction in the 1st 9 months of the year with the latest quarterly negative return of 1.9% in 3Q2018 and latest monthly negative return of 4.74%. For the smart REIT investor, few illuminating pointers can be gained from analyzing these performances so far.
Firstly, although SREITS suffered a negative 1.9% return in 3Q2018, they continued to outperform Equities particularly in the horrendous month of October. Including dividends paid, SREITS would have registered a flat growth, which could be the first quarter of turnaround in the current correction, already in its 186 day as compared to the mean of 86 days in the prior 4 SREIT correction in the current decade.
Yes, we are indeed approaching the bear turning point in the current SREIT market correction which started on 26 Jan 2018. After a long 9 months, it does look over-stretched and tired – good news for SREIT investors?
The Worst SREIT performer has been Lippomalls which REIT price crashed from 41 cents at end-2017 to 24 cents at end-Oct or a loss of 41.46%. We had recommended AVOIDING and SHORTING this REIT in our classes throughout last year and not surprisingly, Lippomalls reported a disastrous 24.3% 1Q2018 decline in Distributable Income to Unitholders and a sharp 24.7% drop in DPU to a measly 0.67 cents. The downtrend momentum in the quarterly results had continued throughout this year with the CEO resigning after only a very brief period on board. The new CEO is now its 3rd CEO in the last 2 years.
Lippomalls have gone on aggressive asset acquisitions since 2008 increasing its portfolio size from 15 and value from Rp 6.4 billion to a portfolio size of 30 and value of Rp 19.5 billion in 2017. But alas, such aggressive asset acquisitions partly financed by expensive PERPS at 7% do not lead to accretive results. We closely examine SREITS acquisitions and their capital structure closely in our REITS Investment classes as that holds the key to future performance.
Notably, Hospitality REITS like OUE HT, Far East HT and CDL HT took 5th, 8th and 11th Positions respectively in the Worst SREIT Performers although the hospitality sector finally stabilised this year with many hotels owned by the SREITS reporting either flat Rev Par and/or occupancies. If anything, these performances indicate to the smart SREIT investor that positioning cheap into the SREITS before an industry upturn is key and exiting before stability sets in when all the good news is out in the market, yields the best market timing propositions.
Notably too, whilst a few brokers have trumpeted the call to buy into Hospitality REITS, hardly any sounded any trumpet call to exit before their respective share prices drop.
Again these are what we teach in our SREIT Investment classes, the next which is on 24 Nov 2018 to impart such skills.
Keppel KBS Reit underperformance (2nd Worst REIT Performer) is also glaring, particularly so when all their assets and revenues are denominated in US$ which has surged 4.94% to US$/S$ 1.38 this year.
Keppel KBS Reit and Manulife Reit (4th Worst REIT Performer) best epitomize the recent SREITS listings which comprise all or mainly foreign assets. Subsequent to their listings, instead of letting organic growth of the IPO assets drive earnings, these REITS have just embarked on aggressive acquisitions.
However, most REITS fail to understand that smart REIT investors analyze acquisitions via the need to finance them, no matter how DPU accretive they can be on a proforma basis. Like in Manulife case, 2 rounds of dilutive rights issue to finance acquisitions do in fact shed light that and begs the question if indeed those acquisitions were beneficial to minority shareholders in the first place.
Do sign up for our 24 Nov 2018 class entitled “Demystifying SREITS performances for outperformance in 2019” as we help you pick the Winners for next year and warn you about those to avoid to ensure a safe and stable portfolio.
Do click on the link to:-
https://gcpglobalsg.wixsite.com/gcpglobal/events-1/demystifying-the-reits-for-outperformance-in-2019
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