02/2021
As the Year of the Ox approaches, I believe it will herald in a new era of positive total returns for REITs as well as other investments, if the sagacious investor knows where to look. The devastation caused by Covid-19 and the resulting recession will be felt for most parts of 2021, at which point some of the hardest hit sectors will start to show gradual to rapid improvement. The reset for prices in REITs and other investments will be behind us and investors can feel confident in the safety of dividend streams again in the new era.
Headlines in the Year of the Ox
The Year of the Rat will surely run out with most of the bad news. While the legacy of Covid-19 may still linger, the Year of the Ox will be filled with more positive headlines that will support higher rental collections and multiples for REITs, lower capitalization rates for most property sectors as well as stronger network effects for Technology and Innovation Disruptors. I am looking at a strong double-digit total return from REITs.
The Year of the Rat in Review
One of the most interesting items related to REIT performance in 2020 is the change in the interest rate curve. Regulators learned, from the Global Financial Crisis, GFC in 2007 – 2009, to rapidly slash interest rates to near zero when the pandemic caused worldwide shutdowns and social distancing became in vogue. The US 10-year Treasury yield declined precipitously to a record low of 0.5% in Aug 2002 from almost 2% at the beginning of the year. It ended 2020 nearer 0.9%. The 10-year Singapore bond yield followed a similar trend.
Chance of a Lifetime
Impressively, the Federal Reserve’s swift action to provide liquidity via quantitative easing thereby pushing down interest rates to near zero prevented REITs from having to raise dilutive equity as many were forced to during the GFC. In Singapore, almost 50% of the 22 S-REITs listed then, have had to resort to dilutive equity raising via rights during the GFC. This time round, only First REIT had to do it. And it was not so much due to Covid-19, but more so on its sponsor Lippo Karawachi’s relatively weak financial position which affected adversely several of the master leases renewals, something that we have forewarned in our Quarterly REIT classes since 2018.
However, old fears, like old habits die hard. At the peak of the selling climax on 23 Mar 2020, REITs sold off by as much as 37% in just 22 trading days. The smaller and less-well run REITs sold off even worst – as much as 48.00% to 74.86% and newly listed, Eagle Hospitality Trust had a crash landing. The grounded eagle remained suspended as this publication goes to print.
As expounded in my “Making Your Millions in REITs” book page 24, this turned out to be chance of a lifetime to load up on REITs.
Why are doctors so confident in being able to differentiate between a heart attack and a headache? This is because they extensively study the symptoms of both. Similarly at GCP Global, we have trained our student investors to avoid Value Traps for the past 3 decades by extensively studying the early symptoms and issuing warnings way in advance on REITs in our Quarterly REIT classes over the past 3 decades. Yes, we forewarn you on the Bad REITs as well as those turning Bad before they become Bad.
Heart attacks and strokes, the seizure can come anytime and send the victims into sharp pain and possible convulsions. Similarly, the Covid-19 Crisis was another episode that highlighted that there are Good REITs and there are Bad REITs. During a Crisis, the latter will cause convulsions which can result in sharp pain in an investment portfolio, but the Strong REITs are the ones that rebound the fastest while the Bad REITs will rebound the least and slowest.
When reality strikes home, it strikes hard. Yes, investing on SGX stocks alone would hurt your investment portfolios badly as “Singapore overtakes Thailand to become Asia’s worst stock market”, screams the Bloomberg headline.
This also means that most Singaporeans would have done very badly if they had invested in only supposedly “blue chips” like SIA, Comfort Delgro, Sembawang Industries, Keppel Corporation, SPH or the telcos.
We had continued to warn even in our most recent investment class entitled "Triple Your Money with Tech Stocks" on 24 Oct 2020: -
1. The FTSTI index, STI represented by the white line above, ended 31 Dec 2010 at 3,190 points. 10 years later on 25 Sep 2020, it stood at 2,468.04, down a massive 721.96 points or 22.63%.
2. There are already 6 REITs in the 30-stock STI index. We analyzed further and pointed out that if you had excluded the 6 REITs performance in the STI index from the other non-REIT component STI index, the STI index would have tracked a much more severe loss over the past decade.
3. Compared to the Hang Seng Index, HSI represented by the blue line above, it has consistently underperformed the HIS not 1, not 3, not 5 but over the past 10 years!
4. This huge underperformance is even more stark if you compare the STI to S&P (using the S&P ETF, SPY), represented by the red line above. The latter easily tripled over the past 10 years. This means that any investor putting money into the low cost, passive S&P ETF, SPY would have outperformed the STI by more than 400% in the past 10 years!
Investment Implications
1. There are fundamental flaws in the companies that trade on the SGX. Other than REITs (which you also need to side track the Bad Apples) and banks in the STI, most of the other companies are either old economy stocks or do not have the essential traits to do well in the new digital economy.
2. Good Singapore companies like SEA Ltd (SE) or Razor have chosen not to list in the SGX ironically or logically. But as shrewd investor, we should still chase such stocks. For instance, one of the big winners for students of GCP Global was SEA. We recommended SEA during the height of the Covid-19 Pandemic sell off at below US$40. SEA share price shot up by more than 500% in 2020 to surpass US$216. Catching such stocks at the right price will make you the fortune and you don’t need to work another day.
Table 3 – We recommended SEA during the height of the Covid-19 Pandemic sell off at below US$40. SEA share price shot up by more than 500% in 2020 to surpass US$216.
3. We have highlighted in our investment classes in the past decade to adopt an international portfolio comprising of Tech market leaders, Innovative Disruptors and solid REITs to earn the millions that a sharp and smart investor is able to reap from markets year after year.
For more on “Where and How to Make Your Next Million”, do join us in our next investment class on 27 Feb 2021.
We help ensure that although the FTSTI has been a poor place to invest in the past 10 years, you will continue to guide you to the millions that markets can deliver if you know WHERE and HOW to invest.
Happy New Year.
GCP GLOBAL RECOGNISED AS ASIA’S FOREMOST EDUCATOR IN REITS IN THE SINGAPORE CORPORATE AWARDS 2019 https://www.facebook.com/gabrielyap17/videos/740467253053012/
OUR LATEST MEDIA INTERVIEW ON REITS, TECHNOLOGY & DISRUPTOR INNOVATORS –
1. Wise Investor Cracks the REIT Myth – 21 Dec 2020, LianHe Zaobao
2. Reality Bites for REITs – Our Live Session with Mr Adrian Chui, ED & CEO, ESR Funds Management – 17 Dec 2020, GCP Global Live
3. Sizing up the epic Sabana, ESR-Reit showdown and riding high on Electric Vehicle, EV stocks – 11 Nov 2020, Business Tech Asia
REITS FOR A GOOD CAUSE - GCP Global students donate to help Covid-19 victims https://www.facebook.com/352565835119256/posts/1099738943735271/
OUR PARTNERSHIP WITH MONEY FM89.3 IN ITS MAIDEN LAUNCH OF MONEY MATTERS https://www.facebook.com/352565835119256/posts/1126789454363553/
OUR LATEST PUBLICATIONS -
1. 7th Year Itch for S-REITs and its severe ramifications for the REIT investor
https://gcpglobalsg.wixsite.com/gcpglobal/post/7th-seven-year-itch-for-s-reits-its-severe-ramifications
2. “I Made a Mistake” – Best Advice for the Sagacious REIT investor
3. Tripling Your Money with Global Tech stocks
4. The Ability to Deliver DPU growth is the Key in S-REITs superior performance in 2020
https://gcpglobalsg.wixsite.com/gcpglobal/post/the-ability-to-deliver-dpu-growth-is-the-key-in-s-reits-superior-performance-2020