04/2022
Acquisitions by REITS in the past five years from 2017 right up to 2021, have continued to be fast and furious, pandemic or not. S-REITS have announced a whopping $47.513 billion worth of acquisitions in the past five years.
Correspondingly, they have come onto the market and raised a whopping $25.900 billion. This amount is almost 5x or 400% from S-REITS IPOs raised in the past five years which amounted to $5.565 billion!
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. In addition, the scare the emanated last year on the tax transparency for REITS with US assets are real factors that smart REIT investors should take into account.
Not surprisingly too that 100% of S-REITS which have IPO in the past five years, all have assets that are overseas, ranging from ARA Hospitality Trusts with hotel assets in the USA, Keppel Oak Pacific REIT and Prime REIT with office assets in the USA to Sasseur REIT with retail assets in China and Daiwa House Logistics Trusts with logistics assets in Japan.
However, have such trends of S-REITS owning overseas assets benefited minority shareholders?
For the REIT manager and Sponsors, the answer is straightforward as they earn substantial management fees. When assets are sold or bought, there are acquisitions fees to be charged too. Not so for the minority shareholders of S-REITS who would suffer capital loss if the subscription price of their IPO or if secondary or preferential placements prices suffer badly post IPO or placements.
At GCP Global, we are most concerned about such losses suffered by REIT investors as the losses have spread from 1 to 3 to 5-years now. Continued at this rate, it would be clear that investing in REITS may not be as “safe” or profitable as they used to be.
The above table shows the atrocious performance of S-REITS listed in the past five years. Eagle Hospitality Trust went aground and lost an astonishing $611 million (based on the IPO sum raised) while 7 out of the other 8 S-REIT debutants have lost money for minority S-REIT shareholders.
From a corporate governance angle, the way the six hotels under the ASAP6 Portfolio were audited, valued and the bankers and legal advisors’ roles are really baffling and are still unanswered after the Eagle has crashed. Eagle HT’s prospectus was 890 pages, probably the 2nd thickest after the 1,066 pages in the Cromwell REIT prospectus, but clearly, greater disclosure does not equate greater transparency.
S-REIT investors are hard-pressed to find deep and sensible analysis of REIT IPOs and valuation of placement prices (which we specialize in at GCP Global). Most analyst 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. Just look at the number of buy reports touting Eagle HT IPO before its troubles began.
For me, S-REITs acquisitions and IPOs done in the past 5 years are indeed illuminating as S-REITS 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. My latest Youtube video delves into this in detail.
Also, I was interviewed by Business Times on 16 Mar 2022 on “Too Many S-REITS making cash calls that don’t add value for unitholders.
You can watch my detailed analysis here.
For outperformance, the smart and sharp REIT investor should always be watchful of REITs that will underperform over specific periods of time as long-term underperformance can result in a huge deterioration in terminal wealth. 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 “WHAT WORKS & WHAT FAILS IN REITS & IN REITS ACQUISITIONS” on 7 May 2022. SIGN UP HERE. Knowing how to side-step and avoid those REITS that will fail 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 –
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
3. FIGHT HOTS UP FOR LOGISTICS ASSETS – 24 Nov 2021, BUSINESS TIMES INTERVIEW
4. NON-SEQUITUR FOR S-REITS IN THE EPRA INDEX? 17 Sep 2021, BUSINESS TIMES INTERVIEW
https://www.facebook.com/gabrielyap17/?eid=ARBIaPqFh8i6100SM69EUaP0PqWBjSnJsc-tq2v6kM3EsF3JzWthv7yWi6hl4-T6NfqC8N5wEYejP3k6
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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GCP Global students donate to help Covid-19 victims
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https://gcpglobalsg.wixsite.com/gcpglobal/post/separating-the-sheep-from-the-goat-in-s-reits
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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
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