09/2022
“Quality” REITS have outperformed in S-REIT’s 20-year history. But what qualities do “Quality” REITS need to have that savvy investors seek? Which are the “Quality” metrics needed to capture the indicators of higher-quality financials in REITS? We have successfully taught this in our REITS Quarterly classes in the past 33 years. Let’s delve into some examples in this month’s article.
Unlike standard factors like value, momentum, scale, size or profitability, “quality” lacks a commonly accepted definition. However, fund managers, index fund managers, family offices and UHNI investors, that we at GCP Global have taught, know that “quality” is the underlying trait for picking outperforming REITS and holding onto REITS as core holdings.
We define “quality” as a comprehensive compendium of: -
· Profitability
· Accounting quality
· Steady DPU growth
· Resilient Earnings stability
· Optimal Capital structure
· Quality of sponsor and manager and
· Alignment with minority shareholders.
These traits have helped us capture the majority of quality return premium from S-REITS in the past 20 years.
Let’s illustrate with some examples from S-REITs recent quarterly results ending 1H2022
Table 1 shows that Ascendas REIT is enjoying higher reversionary rentals from all almost all segments of the various markets that they operate in – business parks, logistics, data centres and industrial spaces.
Not only that, it is almost across the board in the different geographical areas that they operate in – Singapore, Australia, United States and United Kingdom/Europe.
If these trends continue in the coming quarters, they would set the stage for another share price outperformance. GCP Global student investors are aware that Ascendas REIT have exhibited steady DPU growth and resilient earnings stability in the past 20 years since its IPO. Backed by a strong sponsor which has undertaken expansion endeavours with the interests of minority shareholders in a high pedestal, these continue to make Ascendas REIT one of our CORE HOLDINGS.
Contrast this with Manulife REIT, one of the Value Traps that we have highlighted way back in 2019 as well as in our book Making Your Millions in REITS
The Business Times headline screamed “Manulife US REIT manager eyes “hotelisation” of office assets” after Manulife REIT latest results. This belies the fact that Manulife REIT just reported another poor set of results – DPU continued to decline by 3.3% to 2.61% despite new contributions from Tanasbourne, Park Place and Diable acquisitions in Dec 2021. This meant that if NOT for these acquisitions, both gross revenue and NPI could have been negative and the erosion of DPU would have been greater. These clearly imply that the underlying assets of Manulife REIT continue to be underperforming, something that we have been warning in our GCP Global Quarterly REITs classes since 2019.
Not surprisingly, we have been SPOT ON and the share price of Manulife REIT has crashed from by almost 50% to below US$0.50 (lower than the lows reached during the Covid-19 selloff, a feat only shared by 1 other S-REIT).
Table 4 - Manulife REIT share price has crashed from by almost 50% to below US$0.50, lower than the lows reached during the Covid-19 selloff, a feat only shared by 1 other S-REIT since our 2019 warning and sharing to GCP Global student investors in our Quarterly REIT classes
Why were we able to be SPOT ON on Manulife REIT?
In our Quarterly REIT classes (Our 33rd Year in regular Investors Education), we have identified and shown where Manulife REIT has come out short in the “quality” definition which comprise the comprehensive compendium of: -
· Profitability
· Accounting quality
· Steady DPU growth
· Resilient Earnings stability
· Optimal Capital structure
· Quality of sponsor and manager and
· Alignment with minority shareholders.
Do join us for our next Quarterly REIT class on 26 Nov 2022 to be held at the prestigious Hilton Singapore Orchard where we will continue to identify for your QUALITY REITS and those that are VALUE TRAPS. We are indeed humbled and honored that OUE Group has recognized our Investors Education endeavors' of the past 33 years and will be the Official Venue Sponsor.
Sign up link https://gcpglobalsg.wixsite.com/gcpglobal/events-1/has-the-worst-of-the-time-turned-into-the-best-of-time-for-s-reits
OUR LATEST MEDIA INTERVIEW ON REITS, TECHNOLOGY & DISRUPTOR INNOVATORS
1. REITS AS GREAT INVESTMENTS – National Day Interview 9 Aug 2022, BIZ TECH
2. S-REITS MARKET MUST STEP UP – 19 Jul 2022, BUSINESS TIMES
https://www.linkedin.com/posts/gabriel-yap-8745b822_s-reits-market-must-step-up-our-business-activity-6954980627293097984-tWe6?utm_source=share&utm_medium=member_desktop
BETTER INVESTOR EDUCATION AND PROTECTION FOR A THRIVING REIT MARKET – 26 May 2022, BUSINESS TIMES
4. FOCUS ON ROIC & EV/EBITA TO EVALUATE REIT MERGERS & ACQUISITIONS – 17 Mar 2020, BUSINESS TIMES
5. TOO MANY REITS S-REITS MAKING CASH CALLS THAT DON’T ADD VALUE FOR UNITHOLDERS – 16 Mar 2022, BUSINESS TIMES INTERVIEW
6. FIGHT HOTS UP FOR LOGISTICS ASSETS – 24 Nov 2021, BUSINESS TIMES INTERVIEW
7. CHINA REITS COULD GIVE S-REITS SOME COMPETITION – 21 Jun 2021, BUSINESS TIMES INTERVIEW
8. IMPACT OF CHINA REITs ON S-REITs – 14 Jun 2021, LianHe Zaobao
9. WISDOM EYE ON BUSINESS – 25 May 2021, Wisma Geylang Serai, South East Community Development Council of Singapore
10. BOTTOM FISH FOR TECH & CHINA TECH – 25 Apr 2021, BUSINESS TECH ASIA
REITS FOR A GOOD CAUSE
GCP Global students donate to help Covid-19 victims
OUR LATEST PUBLICATIONS -
1. HAVE MARKETS REACHED MAXIMUM PESSIMISM?
2. THE ABILITY TO DELIVER DPU GROWTH IS THE KEY IN S-REITS SUPERIOR PERFORMANCE IN 2021
3. SEVEN & HALF YEARS ITCH IN S-REITS – THE ITCH CONTINUES WITH SEVERE RAMIFICATIONS
4. SEPERATING THE SHEEP FROM THE GOAT IN S-REITS
https://gcpglobalsg.wixsite.com/gcpglobal/post/separating-the-sheep-from-the-goat-in-s-reits
5. WHERE & HOW to make your next Million in the Year of the Ox
6. 7th Year Itch for S-REITs and its severe ramifications for the REIT investor
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