SReits – Time to take some profit

All the SReits had already released their quarterly results. Below is a table that shows the Q2 Yield, Q1 Yield and the Delta between the two yields (Q2-Q1) of selected SReits and Business Trusts listed on our local stock exchange.

For clarity, in this post, I defined yield as the sum of the last 4 quarterly dividends – simulating an annual dividend rate. This is to smoothen out the change compared to annualising the quarterly dividend.

It is obvious from the table that the Q2 yields are generally lower than Q1 yields. 

Out of the 38 counters below, only 6 have the same or higher yields in Q2.

Q2Q1_2017DeltaYield

So, what have caused the Q2 yields to drop?

There are 2 possible reasons for a reduction in yield. 

They are either

  1. Higher Unit Price
  2. Lower Dividend Declared

or a combination of the two

For some of you who have been monitoring the SReits, you will have already observed that the SReits are currently experiencing a mini rally. Many of the SReits are hitting their 52 weeks high. 

Below is a table that shows the delta of the unit price of these SReits at end of May (Q2) and mid March (Q1).

Except for Accordia Golf, Cambridge and Sabana, all the other 35 SReits and Business Trusts have a higher unit price at end May. 

Some of the biggest movers (>10% increase) are Asian Pay TV (+15 cents), CDL Hospitality Trust (+26 cents), MapleTree GCC (+13 cents), Croesus Retail (+11 cents), Frasers Commercial (+13 cents), Keppel Reit (+11 cents) and MapleTree Logistics (+13 cents).

The increase is across the board and they are not sector specific. It is pretty broad base.

Even some of the old guards – trusted and stable  favourites like Ascendas Reit (+19 cents), Capitaland Commercial (+16 cents), MapleTree Industrial (+17 cents) and Parkway Reit (+17 cents) have recorded healthy gains that are close to 10%.

Q2Q1_2017DeltaPrice

Some of them have “valid” reasons for a rally. Like Croesus who announced that there are potential buyers for their assets. 

However, in most other cases, I struggle to pinpoint a reason for the rally.

How about their dividend (in cents) per unit?

50% of these SReits and Business Trusts actually have a lower DPU (accumulation of last 4 Quarters) in Q2 compared to Q1.

Q2Q1_2017DeltaDPU

To me, the combination of the higher unit price and the lower DPU is worrying.

Some of you may have read about my previous post on reversion to mean. Although I don’t track all of the SReits listed in the table, I don’t think I would be too far away to say that most of the SReits are trading on the lower half of their historical yields today.

Are there reasons for the optimism?

Personally, I don’t see it. I can’t find any major impetus to sustain this ongoing rally. 

This may be fuelled in part by the feel good sentiment related to the record-breaking performance of the US markets (Dow, S&P500, Nasdaq) etc.

Furthermore, the interest rate is climbing and they will eventually harm the Sreits that are heavily leveraged. It is almost certain that US will have another 2 more rate hikes this year. 

The chart below shows the Sibor rates for the last two years. It is showing an obvious increasing trend since late last year when Fed announced the intent to increase the US interest rate.

Data from: ABS CO. – SIBOR AND SWAP OFFER RATES

Sibor

As some of you may know, sometimes, there is really no reason for the value of the company to change, yet the stock price of those companies can rise and fall by a lot. 

Stock prices of companies can be driven up or down purely by sentiment. Those are the moments we need to act. Depending on how the stock prices perform against the fair value that you attach to it – you either take profit or accumulate aggressively.

Hence, in view of all these, I would be taking profit from some of my SReit investments below – I think their share prices have run ahead of their fair values.

  1. Ascott Reit – I have reduced it from 4.2% to 1.2% of my portfolio by value since my previous post
  2. Asian Pay TV Trust
  3. CDL Hospitality Trust

With the money back, I am hoping to build up my war chest for next black swan event.

Meanwhile, I may park the fund in Singapore Saving Bonds.

Hope you find some good reasons to act (or not to act) from the information here.

Have a great investment week ahead.

Contributed by: Warriortan

#warrriortan, #investforyourself, #sreits

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