Jan 12, 20206 min read

SINGAPORE REITS – REPLETE WITH SPLENDOUR

01/2020

SREITS has had one of the best performing year in 2019 with the FTSTI REIT Index up a solid 15.534% to close at 920.43. Including dividends, SREITs posted a stupendous 20.834% return! S-REITs trounced stocks as the FTSTI index was only up 4.781% closing at 3,222.83 on 31st Dec 2019.

Over the past 2 years, we had advocated a strong positioning in SREITS in our various REITS investment classes, Forums and Symposiums attended by more than 3,000 investors in South-East Asia. Again in April 2019, we had continued to stress the strong prospects of SREITS in our tactical research https://gcpglobalsg.wixsite.com/gcpglobal/post/sreits-has-had-a-great-run-in-1q2019-what-s-next

We had handpicked the MACFK (Mapletrees, Ascendas, Capitaland, Frasers and Keppel group of REITs) to spearhead the REIT rally for our investment audience earlier in the year. Not surprisingly, 7 out of the Top 10 Best REITs for 2019 belonged to the MACFK family, our most preferred REITS which we have always recommended in our classes.

https://gcpglobalsg.wixsite.com/gcpglobal/post/singapore-reits-a-magnificent-run-spearheaded-by-the-macfk

Also, all Top 10 Performing REITS scored capital gains of more than 20% in 2019, a feat that was last seen in 1H2013 before the “Taper Tandrums” correction. Including their DPU payouts, the Total Returns for the Top 10 REITs would have notched up Total Returns of 25.2% - 40.01%, smashing returns compared to stocks return of 8.3% for 2019.

Our Malaysia REIT Symposium & Investors Meet for First REIT in Penang

BEST REITS IN 2019

Our predictions have been a beacon of light in contrast to many market participants, pundits and bloggers who have predicted at end-2018, then in April 2019 and again in the summer of 2019, to take profits on SREITS as yields and P/NAV have reached beyond -1SD and 1.5SD respectively and yield spreads have fallen way below the 5-year historical average.

At GCP Global, we don’t just look at academic parameters to make judgement calls. Our comprehensive approach to engage our investor students with the Top REIT management, Investors Trips, Investor Symposiums and Investor Forums are integral in the REITs Tactical Switches and Recommendation process.

https://gcpglobalsg.wixsite.com/gcpglobal/post/another-new-record-set-in-july-2019-for-reits-acquisitions

Best REITs in 2019

The Top Performing REIT in 2019 goes to Keppel DC REIT. The share price performance of Keppel DC REIT is symptomatic of the kind of REITs that will outperform (that we teach in our REITs classes) for 2020.

Keppel DC REIT share price really started to move in a big way after it announced 3 acquisitions in 3 months. After languishing below $1.60 for the first 7 months of the year, the share price did a leap from $1.62 on 13 August 2019 low to end at $1.80 at 30 Aug 2019, a whopping 4.67% jump in just 2 weeks (we monitor such price breakouts closely)!

Then it announced the twin acquisitions of KDC Sin 4 for $384.9 million and 1-Net North Data Centre for $200.2 million on 16 Sep 2019.

These acquisitions were financed by a combination of predominant equity and debt. Unlike many other REITs, Keppel DC REIT was able to finance via a private placement of 135 million shares at $1.744 and a preferential placement of 141.989 million shares at $1.71. The private placement at $1.744 was offered at a very low-price discount of only 2.5% to its VWAP of $1.7882. It was 9 times oversubscribed.

This meant that the dilution to proud existing shareholders, like myself, was minimal. This discount is only the 2nd lowest ever for a private place, 2nd to only the Frasers Centrepoint Trust (another REIT where I am their Substantial Shareholder since its listing in 2006) private place at $2.382 on 16 May 2019.

Moreover, existing shareholders like myself, get to participate in their preferential offer at $1.71 to raise $242.8 million. Getting the excess shares in such applications are like striking 1st Prize in the Lottery.

Again, unlike other REITs, Keppel DC REIT placement and preferential offer had reduced gearing to 28.9% as at 30 Sep 2019 from 31.9% despite doing a $585 million twin acquisitions. Moreover, it was able to lower to its cost of debt to 1.7%, 2nd lowest only compared to Parkway Life REIT. Not many REITs can achieve such feat.

LESSON LEARNED

Good REITs need not offer private placements at too sharp a discount to warrant success.

Good REITs undertake private placements that lead to minimal dilution for existing shareholders. Good REITs can even decrease their gearing after successful acquisitions and placements at small discounts.

Such are the kind of REITs that perform and such are the kind of REITs that we highlight and teach our investor students in our Quarterly REITs classes, which is entering into its 11th consecutive year in 2020.

Lobster time with Mr James Liew, CEO of Lippomalls, Ms Christina, of Lippomalls and Mr Victor Tan, CEO of First REIT – when you make the right calls on Lippomalls and First REIT, every day is lobster day!

WORST REITS IN 2019

We had previously warned on staying away from REITs that destroy shareholders value like Soilbuild REIT and Eagle Hospitality REIT in https://gcpglobalsg.wixsite.com/gcpglobal/post/avoiding-value-traps-for-the-smart-sharp-reit-investor .

Not surprisingly, both REITs turned out to be the Worst Performing REITs in 2019, as per our prediction. Together, with ARA Hospitality Trust, there were only 3 REITs that registered negative capital return in 2019.

A Value Trap in REITS is one which appears to be cheap as the REIT has been trading at low valuation metrics such a multiple of earnings, cash-flow, book value while paying above average dividend yield for an extended time period. Such a stock attract investors who are looking for bargains, especially the above average dividend yield. We identified such REITs for you in our classes and help you build wealth while helping you to avoid REITs that destroy shareholders wealth.

LESSON LEARNED

Avoid Value Traps in REITs as they destroy your wealth. Even investing in a mediocre REIT can earn you steady dividends of 6 – 8% annually if the capital value is not a value trap.

Our REIT Symposium in Malaysia June 2019

PROSPECTS IN 2020

Heading into 2020, skeptics have again expressed switching out of SREITS as they had just enjoyed one of the best-ever year since SREITS started in Singapore in 2002.

S-REITs have seen their yield compressed to 5.1%, but due to the low current 1-year bond yield of 1.75%, the yield spread at 3.35% still offers the best spread compared to alternatives like equities, bonds, hybrids, derivatives, currencies.

At GCP Global, we keep you informed of S-REITs closely, track those variables that affect REIT prices closely. We take great pride in especially analyzing in-depth each of the various acquisitions as we believe these hold the key to out-performance of SREITs and separating the goat from the sheep in the REIT sector.

Given the conducive cost of capital, we expect S-REITs to continue to pursue acquisitions with the same zeal, as they did in 2019, in the new year. Depending on how the deal is financed (as shown in Keppel DC case), cost of funds and how the new assets will bolster underlying DPUs, all these can combine to result in a potential reflation in their share prices.

We analyze that for you in our classes and our next class is on 14 Mar 2020. Do sign up here where we show you the potential winners before their share prices deflate.

The S-REITs that will do well in 2020 will be: -

1. Those with strong acquisitions pipeline

2. Those with strong sponsors that have shown that asset injections will be at win-win prices for both sponsors and shareholders and

3. Those with strong AEI potential and asset recycling potential

As long as we have an environment of lower risk-free rates (Singapore government 10-year bond are still below 1.8%) and lower interest rates will lead to lower cost of capital which would mean that any price correction is likely to be shallow as SREIT valuations would be supported.

But I have to warn that SREIT valuations have almost reached the May 2013 “Taper Tandrums” levels in terms of -2SD for dividend yields, +1.5SD for Price/BV and Yield Spread relative to the Singapore 10-year bond yield. There will be exceptions like Keppel DC REIT that currently trades at a 70% premium to its NAV, but how does the smart investor knows that the market is willing to pay this premium or even higher? These are what we address in our upcoming classes.

Going forward, the lynchpin for outperformance would lie in acquisitions. REITs that make DPU and Yield accretive acquisitions should be on investors’ radar. This is a key area of our expertise as we dice and slice, toss and answer in our Quarterly REITS and Master REITS classes which will outperform and which to Avoid.

Over the past decade, we have educated more than 6,000 HNI and UHNI investors, boutique funds and Family Offices across Asia in our various Quarterly REITS and Master REITS classes. Many of our student investors are actually Top Medical Specialists, Surgeons, Lawyers and Key corporate personnel.