Have some materials that would make good weekend reading and education.
WealthTrack (great to subscribe!) profiles 2 global property investors and amongst them Jason Wolf comes from the deep value investing school of Marty Whitman’s Third Avenue.
They talk about REITs and global properties, in a rising rate environment, from their research what works and what doesn’t.
Gregg Fisher have done a research on REITs in a financial crisis and how they recovered. You can read it here.
- Global property cycles don’t coincide. US properties perhaps in a better position since they have the opportunity for a correction and in a rising interest rate environment, housing recovers with their economy.
- Not so for the Singapore since we didn’t have that rationalization in the first place. When prices and rents are already dear, that will be capped realistically how high they will be able to grow.
- From a deep value perspective, to protect yourself in a rising rate environment for properties is not just to buy REITs that produce only passive income, but also to buy companies that have pricing power, discount to NAV and can grow that over time.
- Mr Wolf tends to favor Hong Kong’s Cheung Kong Holdings for their ability in real estate development and their current price range.
- In Mr Fisher’s research, the more leverage REITs gets beaten down thoroughly BUT they also tend to recover less when the recovery come.
- The onus is to favor longer term debts (perhaps what Mapletree has with their long MTN low interest loans) and also the ability to develop
- If you are doing asset enhancement or development, when crisis hits you gain an abundance of space needing to fulfill which you can’t and that puts a drag on results.
- The larger REITs tend to have more downsides than smaller ones and experience stronger rebounds perhaps due to the previous overreactions.
- Trusts and REITs are meant to find value points more during periods of large volatility like now, rather than during low volatility times.
- There is a need to focus on the ability to grow, whether through organic growth or development, and only the ones with strong sponsors give that edge.
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