11/2021
The first ten months of 2021 produced Winners and Losers in S-REITs. And the difference in the Winners and Losers are as stark and clear as the difference between black and white. The difference lies in the ability of the REIT to deliver consistent Dividend Per Unit (DPU) growth to investors, pandemic or not. We have highlighted and have been proven correct in 2017, 2018, 2019, 2020 and now in 2021 again, that the ability to deliver DPU growth is the key in S-REITs superior performance.
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The effects of Covid-19 have led REITs to withhold back distribution income from shareholders. It is a good indicator to investors as the strong REITs hardly held back any DPU or had any rental deferment affecting its DPU severely. On the other hand, the not-so-strong REITs have had to withheld back a large portion of their distribution income to cover the rental rebates and rental deferment that it’s not-so-strong tenants faced. While the Covid-19 affected all REITs and businesses, the fortunes of the strong REITs verses the weak REITs are clearly played out in the latest 3Q2021 results.
What we have always Taught in our REIT classes
The DPU is the sum of all the quarterly or semi-annual dividends. It is the metric that has consistently ranked as Number 1 for investors to invest in REITs. Thus, the smart investor should always pay close attention to all the numbers that lead up to the calculation of the DPU and the way it is being reported. It is one of the best metrics to assess the profitability and health of a REIT and spot any underperformers.
As in our quarterly REITs class, we have always highlighted that the ability of S-REITs to deliver outperformance should not be based on growth in revenue or NPI or Distributable Income, but on the DPU.
Assessments of the top and worst performing REITs in the past decade on a year-on-year basis, has also underscored what we have been teaching about the DPU as a great measure of REITs performance.
Let’s illustrate with Frasers Centrepoint Trust, FCT.
Frasers Centrepoint Trust, FCT
In FCT’s 2019 Annual Report, I was listed as its Top 16th Shareholder. In fact, I have been FCT Top 20 Shareholder since its IPO at $1.03 in 2006 as shown in its first Annual Report in 2007. So, 2019 was my 14th year as FCT’s shareholder, and a profitable one indeed. However, I ceased to be FCT’s Top 20 shareholder in 2020 when I took my profits when the share price went above $3 in February 2021, as shared in my book “Making Your Millions in REITs”.
I have shared in Chapter 9 of my book “Making Your Millions in REITs” where I have examined and share the reasons, circumstances of a REIT pick at the right price for a substantial stake, in this case how I build up my stake in FCT over the decades.
Acquisitions or the potential pipeline of acquisitions can send a REIT share price into a frenzy. We have always taught that good acquisitions undertaken by REITs can be a lynchpin to superb share price outperformance, especially if the new acquisitions come with outsized DPU accretive impact. However, the reverse is true and FCT, sadly was unable to deliver on this.
After a hiatus of five years, FCT embarked on a one-third acquisition of Waterway Point in Punggol for $433 million in Jul 2019. Waterway Point is a 4-storey suburban family and lifestyle shopping mall with NLA of 371,200 square feet. FCT subsequently increased its stake to 40%. But what was more exciting was that FCT also got a toe-in into the PGIM Real Estate Asia Retail Fund which owns other suburban retail assets like Century Square, Tampines One, White Sands, Tiong Bahru Plaza and Hougang Mall. PGIM Real Estate is the property business of PGIM, the global investment management arm of New York Exchange-listed Prudential Financial Inc.
On 25 Sep 2020, FCT announced the acquisition of the remaining 63.11% stake in PGIM fund which then triggered one of the largest equities raising in FCT’s 15-year history. On 28 Sep 2020, it launched an equity fund raising to raise gross proceeds of no less than $1,327.3 million via 244.681 million shares priced at $2.35 via a private placement and another 324.639 million shares priced at $2.34 via a preferential offer to existing shareholders. The latter was notable as it was only at a 1 cent discount, by far the stingiest in any REIT offering in the Singapore REIT market. In our Quarterly REITs and Master classes, we have advised our student investors to stay out of both offerings and wait to buy nearer the $2.20 level. Of course, I did what I taught and bought tons nearer $2.20.
As elaborated in Chapter 5 of Making Your Millions in REITs – How much to Pay for your REIT? as well as in our Quarterly REITs and Master Classes, we have always guided our student investors that while the purchase of a huge portfolio of assets are always touted as attractive and transformative for a REIT by the manager, investors should always be careful of how the deal was to be financed and if the deal would eventually be both yield and DPU accretive.
From the table, it is clear that while FCT’s DPU suffered in FY2020 (ended Sep) due to Covid-19, the “recovery” in FY2021 hardly exceeded FY2019 DPU. Note that FY2021 DPU would have included the massive acquisition of the PGIM portfolio which the manager had touted that it would be DPU accretive by as much as 8.59% on proforma FY2019 numbers. Not surprisingly, FCT’s share price throughout 2021 has been lackadaisical. In fact, from May 2021 till as recent as Oct 2021, it was trading below the private placement price of $2.35 and the preferential offer price of $2.34. Investors who have sunk their money in would have suffered opportunity costs, even for a good REIT like FCT.
From May 2021 till as recent as Oct 2021, FCT was trading below the private placement price of $2.35 and the preferential offer price of $2.34. Investors who have sunk their money in would have suffered opportunity costs, even for a good REIT like FCT.
While FCT has been one of the REITs that generated a lot of profits for me in the past 1.5 decade, as what I have written in my book –
“REIT investors often fall in love with a REIT. We have always told our student investors to always fall in love with your girlfriend or boyfriend before you tie the knot. Upon marriage, learn to fall in love with your spouse again and again to enjoy eternal blissfulness, just when you are dating. Love indeed, can be sweet. However, when it comes to REITs, never follow this rule.
A REIT is as good as the income stream derived from its various assets. As investors, we should always check and counter-check to ensure that the REIT is able to increase the key metrics of revenue, NPI and DPU growth over time on the same mix of assets. If the REIT acquires, the same metrics apply while incorporating the acquisition process as enumerated in Chapter 8.
REIT investors should not expect REIT managers to be able to perform any kind of magic in management as a REIT derives its value from the stream of income derived from its stable assets. Thus, if the share price goes up too sharply relative to its historical performance and over a short space of time, always be prepared to book in your millions in profits. There is a time to always buy back the same, if not more of the same stock when the price corrects.
The Sell decision in any investment process is always understated, but it is probably more important than the Buy decision in determining the value of one’s gain.”
For more on mastering the Sell decision and how to avoid Opportunity costs in REITs, do join us for our next upcoming Quarterly REITs class on Sat 13 Nov 2021.
OUR LATEST MEDIA INTERVIEW ON REITS, TECHNOLOGY & DISRUPTOR INNOVATORS IN 2Q2021 –
1. NON-SEQUITUR FOR S-REITS IN THE EPRA INDEX? 17 Sep 2021, BUSINESS TIMES
2. China REITs could give S-REITs some competition – 21 Jun 2021, Business Times
3. IMPACT OF CHINA REITs on S-REITs – 14 Jun 2021, LianHe Zaobao
4. WISDOM EYE ON BUSINESS – 25 May 2021, Wisma Geylang Serai, South East Community Development Council of Singapore
5. How to Make Millions in REITs – 30 Apr 2021, FM96.3 HAO in Mandarin
6. Bottom Fishing for Tech & China Tech – 25 Apr 2021, BUSINESS TECH ASIA
7. How do investors spot REIT mergers that destroy value? – 19 Apr 2021, PRIME TIME MONEY FM89.3
8. Mainland Investors flock to S-REITs – 26 Apr 2021, LIAN HE ZAOBAO
9. Most S-REIT mergers have destroyed shareholder value? – 16 Apr 2021, BUSINESS TIMES
10.Opportunities to Accumulate Tech and China Internet Stocks – 11 Apr 2021, BUSINESS TECH ASIA
11.How to Make Millions in REITs – 30 Apr 2021, FM96.3 HAO in Mandarin
12.Bottom Fishing for Tech & China Tech – 25 Apr 2021, BUSINESS TECH ASIA
13.How do investors spot REIT mergers that destroy value? – 19 Apr 2021, PRIME TIME MONEY FM89.3
14.Mainland Investors flock to S-REITs – 26 Apr 2021, LIAN HE ZAOBAO
15.Most S-REIT mergers have destroyed shareholder value? – 16 Apr 2021, BT
REITS FOR A GOOD CAUSE, GCP Global students donate to help Covid-19 victims
OUR PARTNERSHIP WITH MONEY FM89.3 IN ITS MAIDEN LAUNCH OF MONEY MATTERS https://www.facebook.com/352565835119256/posts/1126789454363553/
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