Invest SREITs at all-time low or better to go into Bond Investment Instead?

I am having a headache recently with regard to my upcoming regular month end of additional capital injection into the investment portfolios. On one hand, SREITs have tanked again to near their 52 weeks low and now seems the best time to invest. Saying that, in particularly for the past few months, whenever I thought that the SREITs prices have bottomed and accumulated more units, their price just dropped further. On the other hand, my investment forage into bond unit trusts over the past 1 year has been stable thus far especially with global inflation under control- interest income which I had received is around 6% return per annum and capital price of the bond fund held their ground well. Moreover, there is also potential further capital appreciation once interest rate cuts by the US Federal Reserve is announced.

1. Invest SREITs at all-time low or better to go into Bond Investment Instead? 

I think that I will probably add on to the bond unit trusts for June 2024 month end as I have previously in May 2024 already invested approximately S$10K into both United Hampshire US REIT and Frasers Logistics & Commercial Trust  (unfortunately, both SREIT's unit price declined further after my respective purchases).

2. A close friend asked me whether Equities or Money Market Funds is the best investment in view of current market?

I thought that my friend asked me a very interesting question. My personal thoughts are that for risk averse folks who find equities and bonds extremely risky, then maybe buying into the Money Market Funds is well worth it. Singapore Saving Bonds or T-bills are also good options. 

The thing is that over the years, I have decided to just keep my real thoughts to myself whenever risk averse close friends asked me such question. I will at most just share my thoughts on the above financial instruments since their risk profile is extreme prudence and they generally ask for the sake of affirming their own beliefs (if you say something else, then it gets into a heated debate). However, the fact remains that returns from such investments will barely keep up with inflation. I think that some risks need to be undertaken in order to exit the rat race earlier.

Ok, that's all for today's post, have a great week ahead folks!   

SREIT With Lowest Gearing Ratio and Attractive Distribution Yield of over 7%.

Hi Folks, today, I will be looking into this S-REIT that has one of the lowest gearing ratio among the top REITs in Singapore as well as its very attractive distribution yield of over 7%. 

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Frasers Logistics and Commercial Trust Acquisition of Germany Logistics Assets From Sponsor- My Quick Thoughts.

Frasers Logistics and Commercial Trust (“FLCT”) announced on the morning of  March 15, 2024 that it will be acquiring 4 logistics properties in Germany from its Sponsor, Frasers Property at a 5.1% discount to professional valuation at a purchase consideration of S$189Mil. However, FLCT price dropped by close to 2% from previous day in line with the rest of the general SREIT market price upon the announcement. I was a a bit surprised at  the decline in market price despite the deal being yield accretive since it will be 100% financed by debt. Nevertheless, this reflects investors current risk appetite and sentiment towards SREITs.

Aggregate Leverage Ratio Analysis

I did a quick high level check to find out whether this deal has a severe detrimental impact on FLCT leverage ratio. The S$189Mil deal makes up around 2.8% of its current investment properties portfolio. Its aggregate ratio would have grown from 32.4% as at September 2023 to 34.3% as at end March 2024 (expected completion date). This is still way below my personal conservative red line of 40% (the MAS one is 45%). There is thus still adequate debt headroom for buffer against further economic shocks from falling properties valuation as well as further yield accretive acquisition.

Parting Thoughts

I thought that the long WALE of 6.1 years and also reputable 3PL tenants such as Schenker for the 4 properties are an arguably good buy. Saying that, interest rate risk as well as stubborn inflation that are still above the Fed target are still downside factors to watch out. In addition, management of FLCT could have been more investor friendly to work out the details of the exact yield accretive impact for more transparent disclosure in their presentation materials. 

Further Market Correction Expected This Week Due To Chaos From Escalation of Israel and Hamas War.

Israel has commenced expanded ground operations against Hamas with battle tanks and ground troops storming into Gaza. I foresee further blood bath in the stock markets this week as we have seen in preliminary market reaction during the on-start of previous wars. This week may pose another buying opportunity into SREITs which has been hammered down close to the COVID-19 low.

Quick Highlights:

1. Inflation may come back in the form of higher oil prices which trickled down into higher energy prices for all businesses

There is a current group think that interest rate is at its peak already and that the US Federal Reserve will not increase rates anymore. Current rates of  between 5.25%-5.50% is actually small relative to the interest rates once imposed in 1980s to combat the Great Inflation dark period- the effective Fed funds rate once reached 19.39% in April 1980. 

Moral of the story is not to be too over-confident that inflation is already brought under control. More rate hikes may come until the global economies tanked into recession for the hot demand to finally cool off and to disrupt the inflationary beast

2. "Stable" SREITs mostly in trouble too

The traditional "stable" government linked REITs such as The Mapletree family of REITs are currently running a very high gearing ratio that are already at or near the 40% mark. For example, Mapletree Logistics Trust, Mapletree Pan Asia Commercial Trust and Maple Tree Industrial Trust have gearing ratio of 39.5%, 40.7% and 38.2% respectively. Valuation may go further downwards given the higher interest rates impact and rights issue maybe on the way to avoid breach of banking covenants if the current economic climate worsen. 

Parting thoughts

Personally, I think that no time is a good time to invest these days. Hence despite the gloomy economic outlook, I will most likely be mopping up additional units in Capitaland Ascendas REIT, Keppel DC REIT or United Hampshire US REIT over this 2 weeks. Frasers Logistics and Commercial Trust also looks interesting since it has very low leverage ratio (less than 30%) but I have already added 23,000 units last week and will wait for its September year end results release on 2 November 2023 before deciding on further action.

Will SREITs Crash Further This Week? Cut Exposure to SREITs Or Buy More At Current Lower Price?

The million dollar question this week is whether our Singapore REITs market will crash further after the 4.8% disastrous plunge last week. Well, so far so good as Monday today (23 October 2023), there is a slight rally. SREITs like Keppel Data Centre REIT (“KDC”) which has dropped -14.4% in a single week, from S$2.010 per unit to S$1.72 per unit, has since rebounded by +3.49%.  However, I don't think we are out of the woods yet with the gloomy macroeconomic situation.

1. Risk of Israel & Hamas War Spreading.
Besides Gaza, Israel has been conducting airstrikes against Syria and Lebanon. Iran has also been aggressive towards Israel. US, China and Russia have also been joining in the fray. There are heighten risk of disruption to global supply chain and oil prices may spiral upwards and worsen energy price. Sticky inflation might also rear its ugly head once again. 

2. Interest Rates Risk- Rates Maybe Raised Higher.

The Feds have mentioned that the inflation target is still way above their 2% target and that they may be raising the interest rates again in the future. For SREITs, the fear of higher borrowing costs leading to smaller distribution is certainly driving the market valuation down for most REITs.

3. Divesting DigiCore US REIT And Buying Keppel Corp Instead.

On 18 October 2023, I have disposed 13,000 units of DigiCore US REIT @ US$0.555 per unit and used the proceeds to buy into Keppel Corp when it dropped to S$6.36 per share in order to reduce my exposure to US REITs as well as to take advantage of the special dividend from the latter. This turned out to be a lucky move as DigiCore US REIT has since dropped to US$0.480 per unit as at 23 October 2023. 

Parting Thoughts

Strangely, the earlier morning rebound in price for SREITs on 23 October 2023 morning trading session fizzled out by afternoon. Overall, prices of SREITs continued to drop with only a handful exceptions such as Keppel DC REIT, Capitaland Ascendas REIT & Frasers L&C Trust. I am tempted to inject additional funds into SREITs purchases to take advantage of the significant lower market pricing but have decided to wait till Israel commences their ground offensive into the Gaza which may mark further carnages in SREIT pricing.