07/2018
SREITS suffered one of the worst corrections in 1H2018 as they registered a loss of 69.78 points on the FT Reit Index to close at 786.10 at end-Jun 2018. The half-year loss of 8.153% was even worst than the FTSTI correction of 3.939%, a rather rare under-performance as for most part of the current decade, SREITS have proven to be more resilient than the FTSTI.
As we closed off Jun 2018, SREITS went into its 2nd longest corrective phrase, having being in corrective mode for 105 market days compared to the mean of 90 days for the past 5 SREITS correction this current decade.
The longest correction was for 134 days from 19th Apr 2015 - 27th Sep 2015 when SREITS sold off from 821 to 692 points due to fears of Chinese CNY devaluation and the Black Monday 24th Aug sell-off. Coincidentally, 3 years thereafter, the market seems to worry on the same set of problems, chief of which are higher interest rates and depreciation of the CNY.
An analysis of the Worst Top-10 SREIT Performers would vindicate what we have been teaching in our REITS classes (Do sign up for our next REITS Masterclass on 28 Jul 218 at https://gcpglobalsg.wixsite.com/gcpglobal/events-1/reits-masterclass-with-gabriel-yap-2).
The Worst SREIT performer was Lippomalls whose REIT price crashed from 41 cents at end-2017 to 31.5 cents at end-1H2018. We have 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.
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 classes as that holds the key to future performance.
The greatest tell-tale sign was its sharp deterioration of its NAV from 39 cents at 31 Dec 2016 to 35 cents at 30 Sep 2017 and to 32 cents at 31 Dec 2018. Throughout our investment classes in 2017, we have warned investors of such a continual deterioration and its future impact on the REIT price.
We have also warned of the sharp price rises of Suntec Reit, CCT and Keppel Reit in 2017 as investors jumped on the bandwagon of bottoming office rentals. Indeed the lackluster performances in 1H2018 vindicated our warning that SREITS do overshoot and when and how to Trim and Sail away while prices are high, are indeed important in portfolio outperformance.
Manulife REIT, FLT and Cache Logistics round up the Worst Top-10 Performers in 1H2018. These REITS should be cognizant of their asset acquisitions program measured against interest rates continuing to move up as their balance sheets clearly show that issuing deeply-discounted (to ensure subscription) rights which are dilutive and/or gearing up further in an environment of higher interest rates are a delicate balancing act and smart investors would be able to decipher if indeed acquisitions are truly accretive in the long-term. These are what we teach in our REIT classes.
So is the current 5th SREIT correction of the current decade coming to an end soon? Where are the great values to be found? Sign up on GCP Global website REITS Masterclass on 28 July and be the first to know.
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