Which S-REITs' Metric is the Main Cause of Plummeting Share Price in Current Environment?
As the FED continues to increase interest rates (and announced that they will not lower interest rates in 2023), it made risk-free rates (government bonds and Singapore Savings Bonds are now yielding between 2.7% to 3.3% approximately) higher and more attractive than many S-REITs out there.
Parkway Life REIT is my top holding in my Dividend Portfolio, and the recent crash of it's share price made me wonder if its low dividend yield is the main cause of this (currently stands at around 2.53% yield at $4.20). Thus I decided to do a quick dig in, to compare the performance of some of the REITs for the past 6 months (note that only bi-weekly price points are taken to estimate the trend of the REITs, and only REITs with Singapore properties are being compared, to remove the need for geopolitical considerations).
According to the above share price trends, it is quite clear that Lendlease REIT held up the best in the past 6 months. This may be due to two reasons. Firstly, Lendlease REIT was actually one of the first to undergo the fall in share price. It's last peak was in January 2022, which was at around SGD 0.90, and thus it's share price has fallen by approximately 14% by April to SGD 0.77. Thus this period being compared may not be a fair comparison and hence, not an accurate representation for Lendlease. Another reason is probably due to the inclusion of JEM into its portfolio, which is a prized property that helped in the REIT's valuation.
On the contrary, before mid-September, it was quite clear that the most badly affected REIT is none other than the most popular REIT during the pandemic- Keppel DC REIT. Since April 2022, it has retreated by more than 20%. I think the 3 main reasons for its plummeting share price could be due to overvaluation during pandemic times (it's share price has definitely shot up to the moon since 2019), skyrocketing energy and electricity prices, and cryptocurrency crash, which impacts Data Centers negatively. However, as we enter the second half of September, a 'strong competitor' has caught up, albeit in a bad way, and that is my top holding- Parkway Life REIT. It's share price is crashing at the fastest pace since its listing.
If we try to compare the various metrics like Dividend Yield, Price to Book Value and Earnings, we can see that there's is no single metric that can help us fully explain the price movement of the REIT.
In terms of Dividend Yield, Keppel DC REIT is having similar yields now with Ascendas, Mapletree Logistics and Mapletree Industrial REITs, but the price performance is definitely lagging its peers. On the other hand, although Lendlease Global Commercial REIT is trading at higher than average yield currently, but peers like OUE Commercial, Singapore Press Holding and Starhill Global REITs with comparative yields are not performing as well.
In terms of Price to Book Value, although highly overvalued REITs with P/B ratio higher than 1.20 like Parkway Life REIT and Keppel DC REIT are suffering from plummeting share price at this juncture, many undervalued REITs with P/B value less than 0.75 are also facing price corrections, including Keppel, OUE Commercial and Suntec REITs.
In terms of earnings, we can try to understand that if a large percentage of the REIT's income is in foreign currencies, that may have an adverse impact as well due to forex risk, especially when their EBITDA are calculated in Singapore dollars (SGD). In recent months, the strength of the USD has caused much outflow from many countries, impacting the value of Euro, Pounds and Yen significantly. SGD has also depreciated against the USD, but it's considered mild compared to the trend seen in Euro, Pounds and Yen. This can explain the falling prices of Keppel DC REIT (which has many Data Centers is Europe), and Parkway Life REIT (which has many properties in Japan). However, this will not be able to explain why OUE Commercial REIT's performance being relatively weak as compared to others, as the REIT generates most of its income from local properties.
As such, personally I think there may not be any one particular metric that can allow us to fully track and explain the share price of a REIT. I think that overall conviction towards a REIT is more justifiable, which include a combination of factors like dividend yield, P/B ratio, financial strength of sponsor, currencies from which earnings are derived from, and the quality of the properties in the portfolio of the REIT. Another factor that cannot be analyzed by numbers include the psychology and the emotions of investors. Panic sell by investors and traders is a factor that cannot be calculated and measured.
With no conclusion to this, what can I do to protect my portfolio during current climate of never-ending rising interest rates (and hence never-ending crashing of REITs' prices), especially when my portfolio is about 60% REITs? Nothing. As mentioned in previous 3rd quarter update post, my portfolio is already in the red (excluding dividends), which means the last 5 years of capital gains has been wiped out. It is definitely painful, but as I digest what ASSI said in one of his post, a dividend investor should be more concerned with dividends collected and not so much with the absolute share price, because no sale of any stocks are going to happen anytime soon. If no sale from my portfolio is happening, the absolute share price is not important at all. As long as the company remains strong, and fundamentals of the company remains intact, the volatility in share price will one day return back to fundamentals. As such, all that is within my control now is to stay calm, lie back, and continue to wait to collect and reinvest dividends.
I should be happy to face the crash at this time, as I am still able to work and continue to have an earned income, and if possible, buy the dip, a little at a time. Hopefully by the time this "crisis" blows over, my portfolio can emerge stronger, and it is time for me to start my semi-retirement! Barista FIRE, here I come...!