12/2020
Billionaire investor Warren Buffett, chairman of Berkshire Hathaway admitted “I Made A Mistake” when he sold off all of Berkshire’s airline stocks in May 2020 during the Covid-19 Pandemic.
In selling off Berkshire’s positions in United, American, Southwest and Delta airlines at slightly above US$4 billion cumulatively, Berkshire took a huge loss of nearly 50% or almost US$4 billion as the estimated total stakes were acquired at close to US$8 billion.
In admitting his mistake, Warren Buffet mentioned that the sale, huge in the loss amount as it may be, was because “the world has changed for airlines” with the onset of the Covid-19 Pandemic as the industry has been “really hurt by a forced shutdown” due to Covid-19.
I find that “I Made A Mistake” is something the sagacious investor can truly learn from Warren Buffet, a truly great investor although I have always found Berkshire’s investments into airlines puzzling given the huge cyclicality of such businesses.
What makes a truly great investor is the ability to recognize our weaknesses and mistakes, something that we have taught at GCP Global investment and REIT classes for the past 31 years. What encapsulates a truly great investor is also the ability to realize how an industry is changing or is set to change, up or down, and react accordingly.
WHAT WE HAVE ALWAYS TAUGHT
We always warn and pre-empt such huge sell-offs for our student investors (more than 8,000 student investors attend our classes regularly from Seoul to Singapore) that going into a crisis, the right sector picks and REITs is key to avoiding the pain and spill from a crisis sell-off.
For instance, in our 12 Oct 2019 class, we pre-empted and forewarned our students of the perils of investing in Hospitality REITs just when most broking houses and bloggers were recommending the sector.
As it turned out, the Hospitality sector was literally in the eye of the storm of the Covid-19 crisis. The Covid-19 pandemic plunged Hospitality REITs into uncharted operating territories from mid-March and has yet to recover by end-Nov 2020.
Table 1 – For every $1 million invested in the Hospitality sector, you would have lost roughly $275,700 – we had forewarned on this in our 12 Oct 2019 class
The above table showed how we had been able to save investors from the spills of the Hospitality sector. For every $1 million invested in the Hospitality sector, you would have lost roughly $275,700 assuming you had the luck or knowledge to have avoided the eagle that has fallen – Eagle Hospitality Trust which is currently still suspended. If you had tried to fly with the eagle, the crash landing is far more severe.
Not surprisingly, looking at some of the market research and brokers’ reports, the Covid-19 sell-off also showed that REITs like CDL Hospitality, Ascott REIT and Far East Hospitality which have some of their incomes underwritten by their master lessors or sponsors, were as badly affected as those without, contrary to market predictions that these REITs would be more defensive due to their high fixed rent/stable income component.
Share prices of Far East Hospitality which has a high 72% fixed rent/stable income component, CDL Hospitality at 36% at Ascott REIT at 30%, were as volatile as their peers without such feature throughout the Covid-19 Pandemic sell-off. All of their share prices remain firmly in the red as at 30 Nov 2020.
MULTIPLYING YOUR WEALTH IN REITS IN 2021
Acquisitions have been increasingly used by S-REITs to grow their asset size, earnings base and extend their geographical presence. S-REITs have taken advantage of low interest rates and recorded new records on asset acquisitions of $9.06 billion in 2018 followed by $10.24 billion in 2019 and another $7.61 billion as at end-Nov 2020. The staggering total amount of asset acquisitions of close to $27 billion in just three years is the highest ever recorded by S-REITs in any three years, since the S-REIT market commenced in 2002.
In any REIT acquisition deal, REIT managers have dual obligations. They should make sure that they are able to show and convince shareholders that such acquisition is a positive net present value investment and at the same time, demonstrate that the acquisition is consistent with the REIT’s growth strategy.
Thus, it is very important for the smart REIT investor to fully understand the nature and quality of the assets being acquired, the domicile of such assets and the way the REIT finances such asset acquisitions. REIT managers seek to justify every acquisition as “yield-accretive”, but in essence, is this a sufficient criterion to assess an acquisition? Or are there other many varied considerations involved?
There is a big difference between acquiring an asset at market price, which you and I can do, and getting a raw good deal for investors. Unfortunately, many REITs have done more the former than the latter, with serious consequences to their REIT price.
Even for “good” acquisitions, the perspicacious REIT investor should be cognizant of the pricing of the private placements and rights issue undertaken to finance such issues. For instance, I had found the pricing of recent rights issue recent Frasers Centrepoint Trust (FCT) and Mapletree Logistics Trust (MCT) rather demanding for investors and highlighted them in our investment class on 26 Sep 2020 REIT class and my various media interviews.
Table 2 – We also forewarned on the demanding pricing of recent rights issue like Frasers Centrepoint Trust (FCT) and Mapletree Logistics Trust (MCT) in my various media interviews and our 26 Sep 2020 REIT class
As predicted correctly, both FCT and MLT share prices closed below their respective rights issue prices of $2.34 and $1.99 at end-Nov 2020. Student investors who attended our 26 Sep 2020 class had been able to dodge such losses. Of course, being a Top-20 Shareholder of FCT, I love buying opportunities for FCT and have added to my holdings at such weak prices.
The same goes for institutional, family offices and high net-worth individuals who took part in the recent private placement of shares for FCT, MLT and Ascendas REIT. All the subscribers lost money based on the closing prices as at end-Nov 2020.
Table 3 – All the private placement subscribers of the 3 REITs who have lost money based on the closing prices as at end-Nov 2020.
So how does the smart and sharp REIT investor know whether they can make money from private placement and rights issue? We cover this in-depth in our REITS Quarterly class, the next of which is on 9 Jan 2021.
Sign up at https://gcpglobalsg.wixsite.com/gcpglobal/events-1/buying-positioning-into-the-best-reits-for-2021 to enjoy the Early-Bird Special. DEPLOY GOOD DEFENSE AND OFFENSE IN PROTECTING YOUR WEALTH IN 2021
The proper asset allocation strategy is key in making your millions in REITs for the coming new year. Other than the ability and courage to sell your losers, the other key is letting your winners run. Like Warren Buffet’s failed investments in airlines and the losses that recent REIT private placements have shown, now, more than ever, REIT investors should be fearful of what they own. All the subscribers of the recent REITs’ private placements lost money based on the closing prices as at end-Nov 2020. Own only the winners that we identify in our classes.
For the above, do join us for our first REIT class for the new year on 9 Jan 2021 where we examine in detail and ferret out the potential winners for you. Do take advantage of the Early-Bird Special till Christmas 2020. In addition to sharing with you on the best REIT allocation and how to avoid losing money on private placements and rights issue (which I expect will become more rampant in the coming year), we will also cover:
1. After a great run in prices, is it time to defend your REIT profits? And how to do it?
2. Are S-REITs vulnerable to another Covid-19 severe correction like in Mar 2020?
3. Not all private placements have done well as what FCT, MLT and Ascendas REIT have shown – what went wrong? And how should investors protect themselves?
4. Not all rights issue has done well as what FCT and MLT have shown – what went wrong? And how should investors protect themselves?
5. What are the other pitfalls that the Smart and Sharp REIT investor should avoid as the acquisition trail is expected to pick up further in 2021? We forewarn you.
Merry Christmas & Happy New Year!
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OUR LATEST MEDIA INTERVIEW ON REITS, TECHNOLOGY & DISRUPTOR INNOVATORS –
1. Sizing up the epic Sabana, ESR-REIT showdown and riding high on Electric Vehicle, EV stocks – 11 Nov 2020
2. Ant got stomped, but REITs offer stomping foundation – 5 Nov 2020
3. Hunting for Tech Stocks to Achieve Awesome Returns – 7 Oct 2020
https://omny.fm/shows/money-fm-893/how-to-think-through-tech-stocks-to-aim-for-a-r-aw
REITS FOR A GOOD CAUSE
GCP Global students donate to help Covid-19 victims
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OUR LATEST PUBLICATIONS -
1. Tripling Your Money with Global Tech stocks
2. The Ability to Deliver DPU growth is the Key in S-REITs superior performance in 2020
https://gcpglobalsg.wixsite.com/gcpglobal/post/the-ability-to-deliver-dpu-growth-is-the-key-in-s-reits-superior-performance-2020
3. REITs in the Eye of the Tiger
https://gcpglobalsg.wixsite.com/gcpglobal/post/reits-in-the-eye-of-the-tiger