09/2018
April 2018 would go down in the history of SREITS as the month with the largest amount of acquisitions announced. 5 Reits, namely Manulife, Mapletree Logistics Trust (MLT), Frasers Logistics Trust (FLT), Mapletree Industrial Trust (MIT) and SPH Reit all announced acquisitions totaling a whopping $1,368.36 million in a single month!
In fact, SREITS have gone on a rampage this year with $7.325 billion acquisitions announced so far in the first 9 months of the year. This is indeed an astounding new record! Coupled with $3.737 billion of new funds raised to finance the acquisitions, this record has taken on a new spin.
Understandably, due to limited investible local assets, SREITS have been increasingly looking overseas for growth via acquisitions. However, growth via overseas acquisitions do not equate to growth in REIT prices for REIT holders as overseas acquisitions should be analyzed with greater scrutiny due to limited information and lack of independent grounds for verification of certain trends and facts in relation to reversionary rentals, occupancies and tenants’ veracity.
Most analysts buy reports are based on the presentation materials dished out by the REITS, which naturally, will have to dispense out positive information to justify their acquisitions. The smart investor should always question if indeed some of the information dished out to justify the acquisitions are indeed verifiable to justify the price paid.
For me, acquisitions this year are indeed illuminating as SREITS who have become too adventurous in their foreign acquisitions have seen their share prices underperformed, in part due to an overhang of funds raised to finance such acquisitions as well as investors skepticism of such acquisitions.
For instance, Cache Logistics announced on 31 Jan 2018 its foray into Australia with the acquisition of 9 logistics warehouses in various parts of Australia worth A$188.26 million. Its share price then was 86 cents.
I had then highlighted to our participants of our Quarterly REIT class (the next and last class for the year will be on Sat 24 Nov) that for the high price that Cache Logistics paid, the timing (entering Australia at such late-stage of the property cycle) and the fact that Cache has had to sell off a good Singapore asset located at 40 Alps Avenue known as Hi-Speed Logistics Centre to help finance the acquisitions, Cache Logistics share price will definitely suffer.
8 months hence, Cache Logistics closed at 73.5 cents at end-Sep, down a phenomenal 14.5%. Cache Logistics has had to issue Perpetuals costing 5.5% per annum to help finance the acquisition, which to my mind, is certainly very costly which would negate whatever little positive-carry from the Australian acquisitions and leave very little buffer for the shareholder in terms of margin of safety.
The share price speaks.
Then on 20th Apr 2018, Australian-focus Frasers Logistics Trust, FLT announced a whopping Euro 596.8 million acquisition of 21 logistics and industrial properties in Germany and Netherlands. Its share price then was $1.08.
Not surprisingly, FLT subsequently announced a humongous private placement of 331.2 million shares at $0.987 and a rights issue 1:10 at $0.967 to raise a combined total of $476 million to help finance the acquisitions.
8 months hence, FLT closed down at $1.07 at end-Sep. Notably, its share price have just gone sideways, hardly breaking above $1.08 since the acquisitions of the 21 European assets were made.
FLT had acquired the European assets with a lower sub-par 5+% NPI yield as compared to its 50+ Australian asset with close to 7% NPI yield. How does the former add value to the latter other than geographical expansion has found little conviction among SREIT investors. Is this a case of expanding for expansion purposes?
The share price speaks.
Do join us for our next Quarterly REITS class as we explore and delve further into the other REIT acquisitions, particularly those that are not favorable to minority shareholders.
Sign up link
https://gcpglobalsg.wixsite.com/gcpglobal/events-1/demystifying-the-reits-for-outperformance-in-2019
As always, let the share price speak.
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