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SREITS Seize the Day post-BREXIT?

By Gabriel Yap

SREITS Seize the Day post-BREXIT?

With widespread expectations that global interest rates would remain low and the Federal Reserve on hold till next year, SREITS have continued to seize the day and rode the wave of risk adverse behavior among investors post-Brexit.  It has been more than a month since the referendum on 23 Jun and SREITS are up a nice 3.29% as at end-July (following a 4.18% jump in Jun 2016) compared to a miniscule 0.98% for the FTSTI.

Together with safe havens like telco stocks, utility stocks, SREITS have continued to exhibit its key traits – defensive, relatively high but stable yields and benefiting from the current lower interest rate environment.  Despite the recent run-up in yield spreads, SREITS continue to enjoy a comfortable 505 bp spread against the 10-year government bond yield of 1.75% as at end-July.

On a comparative basis, this is still higher than SREITS own 10-year mean average.  Compared to REITS of other jurisdictions like the US, Australia, Japan and Hong Kong SREITS continue to deliver the highest spreads.

As I have predicted in my last month’s article in the aftermath of BREXIT as well as at the recent Invest Fair 2016 at Suntec City which attracted yet again another record turnout of 20,000 investors, the bigger cap SREITS have outperformed in the past 2 months –

TOP -8 REITS Share Price Share Price Price %
31/05/2016 29/7/2016 Change Change
Fortune Reit $8.590 $9.910 $1.320 15.367%
Mapletree Industrial $1.610 $1.810 $0.200 12.422%
Ascendas HT $0.665 $0.745 $0.080 12.030%
Keppel DC Reit $1.080 $1.210 $0.130 12.037%
Frasers Logistics Trust $0.890 $0.990 $0.100 11.236%
Mapletree Commercial $1.430 $1.585 $0.155 10.839%
Lippomalls $0.340 $0.375 $0.035 10.294%
Mapletree Greater China $0.980 $1.075 $0.095 9.694%

To me, the disparity between large cap and small cap SREITS have widened further in the past 5 weeks , suggesting that funds are reverting to a tactical switch, arising from the tide of money coming in.

Notably, 3 of the top-8 SREITS came from the Mapletree family.  The latter is well-known to run REITS with the best corporate governance.

Looking forward, with yields compressing to below 6% for the bigger SREITS, there is a good chance that the mid-cap SREITS will benefit next if the tidal wave of monies seeking for high yield REITS continue.

Regular readers of this column would have known that I have been a key advocator of SREITS in one’s retirement portfolio for the longest time.  In practically all my media programs and interviews, I have also touted SREITS as having been able to deliver steady DPU payouts while savvy trading here and there would be able to reap you 15 – 20% per year (as I have in the past decade).

So while BREXIT has caused havoc, retail REITS have continued to exert its resilience as a good place of refuge.  Malls are certainly another refuge.

With a little careful planning and research, it is possible to make a tidy profit from the lucrative business of property ownership without carrying some of its attendant risks.

A REIT is essentially a trust formed with the specific purpose of raising capital to purchase real estate assets. The rental income from these properties are then distributed to unitholders, with a minimum payout of 90% to ensure taxation benefits.

SREITs are also closely regulated and monitored by the Monetary Authority of Singapore (MAS).

One of the most important rules that an SREIT follows is that it has to distribute 90% of its taxable income to unitholders. In addition to this, unitholders are entitled to the capital appreciation in the properties that have been purchased by the REITs.

SREITS have seized the day by raising close to $1.3 billion post-Brexit in just the month after –
Thu 30th Jun - First REIT issues $60 million PERPS at coupon of 5.68%.
Tue 5th Jul – Mapletree Commercial Trust proposes to acquire Mapletree Business City 1 for $1.78 billion.
Wed 27th Jul – MCT raised $1,018.8 million via offering of 727,701,648 new units via private placement at $1.45 per unit and preferential offering at 17:100 at $1.43 per unit
Tue 2nd Aug –  Ascendas Reit raised $154.7 million via placement of 64 million shares at $2.417 per share.

As interest rates are unlikely to move up till possibly the Dec Fed meeting, I expect interest in SREITS to continue to be buoyant till then.

But not every S-REIT has turned out good results. A quick glance at SGX data will make that very apparent.

Industrial player, Sabana REIT and Ascendas Hospitality Trust have earned the dubious honours as the worst performing SREITS for 2Q2016 with their REIT prices down a woeful 15.87% and 10% respectively. 

The mis-steps of both REITS have clearly being reflected in their underperformances and I would be sharing these experiences in my upcoming full-day course on 13th Aug 2016 entitled “What’s Now for SREITS post-Brexit”. Do sign up to learn about the trading opportunities in SREITS cum-all, ex-div and nil paid rights.  Also, we will delve deep into Financial Evaluation or SREITS and explore how to use SREITS to build a steady investment portfolio as part of retirement planning.

Sign up before the early-bird offer closes.

Gabriel Yap
Gabriel Yap

Mr Gabriel Yap,CFA was an eminent stockbroker who retired from stockbroking in 2009 to devote himself to philanthropy to help the needy, poor and handicap globally. He has donated and assisted Charities Aid Foundation, Australia (CAF), a not-for-profit donor funds management business.  

Mr Yap is also Executive Chairman of GCP Global Pte Ltd, an investment firm that invest in both direct capital markets, bonds, real estate, commodities, foreign exchange and builds businesses. Mr Yap appears regularly for the TV media like Channel News Asia and Bloomberg and radio channels like FM93.8 for their various investment programs.

Previously Mr Yap has also lectured at renowned government institutions like the SEASEN Course for the Monetary Authority of Singapore and at AsianDevelopment Bank. Mr Yap has also lectured at financial institutions like the Stock Exchange of SingaporeInstitute of Banking and Finance, the Institute of Certified Public Accountants, the Singapore Institute of Management and the Securities Investors Association of Singapore.

In 2010, the venerable Reader's Digest magazine created the Money Savvy column in their magazine, helmed by Mr Yap who writes on all things finance and answers questions from the magazine's subscribers.

Mr Yap presently splits his time between Melbourne, Europe and Singapore.