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SREITS get a Pounding by Trump

By Gabriel Yap

SREITS get a Pounding by Trump

SREITs have been hammered severely in the past month, pounded further by the victory of Donald Trump in the US Presidential elections on 9 Nov 2016. Compared to recent highs reach in Aug/Sep 2016, SREITs were down an average of 4.1%, the 3rd sharpest correction in the last 4 years since the 23rd May 2013 Tapering Fears, triggered by then Federal Reserve Chairman, Ben Bernanke. SREITs 2nd largest correction was10.43% in August last year when markets sold off due to the Chinese Yuan devaluation fears.

In fact, the sector does face operational headwinds. An analysis of the SREITs recent 3Q2016 results showed that most REITS were affected by slowing if not declining, reversionary rentals, lower occupancies, increased supply and labour shortages, particularly in the retail sector.

The average yield spread of the REIT sector over the 10 year government bond yield – often used as a benchmark for SRIETs, has narrowed from a high 5.65% in to 4.93% presently as the 10-year bond yield raced up a sharp 2.44% on Friday 25th Nov from as low as 1.73% just before the election results were released on 9 Nov.

Sector-wise, the retail sector suffered the most serious bout of sell-offs. Major retail REITS like Mapletree Commercial Trust, Fortune Reit and Capital Mall Trust suffered losses of 9.43%, 9.04% and 6.68% respectively, one of the sharpest falls in their share prices in the past 4 years over a 2-week period.

WORST 10 REITS Share Price Share Price Price %
POUNDED BY TRUMP 9/11/2016 Nov Low Change Change
Mapletree Commercial Trust $1.545 $1.400 -$0.145 -9.385%
Fortune Reit $9.400 $8.550 -$0.850 -9.043%
Mapletree Industrial Trust $1.690 $1.550 -$0.140 -8.284%
Frasers Logistics Trust $0.965 $0.895 -$0.070 -7.254%
Capital Mall Trust $2.020 $1.885 -$0.135 -6.683%
Mapletree Greater China $1.015 $0.950 -$0.065 -6.404%
Starhill Global $0.780 $0.735 -$0.045 -5.769%
Ascendas Reit $2.340 $2.210 -$0.130 -5.556%
AIMS AMP $1.350 $1.275 -$0.075 -5.556%
Capitacomm Trust $1.555 $1.470 -$0.085 -5.466%

Notably, the big-cap SREITS suffered the brunt of selling – Ascendas Reit, Capital Mall Trust, Capital Commercial Trust and Mapletree Commercial Trust saw days where volumes traded close to 20 million, a clear sign that institutional money were been pulled from SREITS.

It does not help that the outlook remain uncertain given that SREITs face an uncomfortable mix of low growth, heightened currency volatility, coupled with rising risk to distributions from an anticipated rise in interest rates in the next Federal Reserve meeting in December 2016.

In my article on the 23rd May 2013 REITS sell-off, REITS-Still good investmentsfor2014, I highlighted that REITS turned out to be one of the best performers for 2014, after the sell-off in 2013.

As always, the market normally overshoots first, then ask the serious questions later. Indeed, one common misconception is that rising interest rates would automatically be bad for REITS as they increase their cost of funding. It is indeed like saying that all swans are white.

For the opportunity-seeking value investors, black swan events like this are probably the best time to top up on REITs when they are selling at maximum fear. This could turn out to be the classic "Buy when there is blood on the Streets".

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.