REITS, Holding It Versus Buy Low Sell High

I always wonder if a holding a REIT is better or selling when the profit is  hit 3 years of dividend or more, that is profit is 3x the yield. The same question also pop up in InvestingNote, especially when prices has been going up all time high with current yield dropping below 5%. In this post, I will try to plot out and compare the difference in gain for Holding vs. Buy low sell high (BLSH).

Fun Fact
Just before the GFC, CMT was trading at $3.5 with a yield of about 3.8%, CMT current yield is 4.8%, high but not crazy high yet. During GFC, CMT issue 9 for 10 rights, which mean when adjusted for the rights, CMT is now worth $4.52 pre-crsis.

Mapletree North Asia Commercial Trust  
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

Ascendas Hospitality Trust  
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

CapitaR China Trust
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

Capitamall Trust
Buy Criteria:Close to 6% Yield
Sell Criteria: 3 years worth of dividend from Gain

Mapletree Commercial Trust  
Buy Criteria: 6.5% Yield
Sell Criteria: 3 years worth of dividend from Gain

Conclusion
No one Reit is the same, investor's reaction to the price differ as well. Comparison show that one is better off holding AHT and CMT as the difference is minimal and CMT is definately a HOLD rather and BLSH. The comparison is base on hindsight so there are rooms for error in executing as well as broker's fees. 

For MNACT, there is a substantial gap in gains. 90% vs 112%, BLSH is the winner. 

MCT show a unique situation. The price never come down low enough to reach 6% yield  and rebound at 5.9% after selling off in 2016. LOL, if one stick to the TP, he would have missed the boat since 2016. However, he will be rewarded handsomely if he did catch in at the low. gain will turn out to be 120% vs 48.8% total gain. It's tought to be right all the time.

So in conclusion, It is better off to hold on to your REIT unless there is a better investment (Just sold FLT for First Riet) or when the price is so high that the yield has reached GFC level of below 4% yield.Human nature, even with the comparison proof that holding is the better strategy , I am still tempted to sell! the immediate gratification! I need to find a way stop my hand from the sell button!

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How did REITs fare against rising interest rates?

In 2016, Fed Chairman Janet Yellen started to increase interest rates. Doomsayers said that REITs will be affect by the rising borrowing cost. Some even said that REITs will tank a further 20% by 2020 while most REITs are trading at/near 52wk low in 2018. Well what do you know, Powell had signaled a slow down in rising rates. This further shows that you can't predict or time the market. Hence REITs has been pushing towards new highs in January 2019.

Between Dec 2015 to Dec 2018, the Fed had increased interest rate by 2%. Did the cost of borrowings affected the REITs as most had feared that led to the sell down in 2015? I decided to take a look at the REITs that I own as well as the more popular ones.

It seem that those that have a huge jump in cost of borrowings are those that are aggressively executing M&A despite the rising rates., especially the Mapletree family. If memory serve me right, CCT, Areit, MLT and MINT did some aggressive M&A during these period. Although the increase looks big in terms of percentage, the cost is still manageable (e.g 48 basis points increase for MCT) and most are still below 3%, More importantly, their interest cover is healthy.

Will you still invest it those REITs with increased finance cost? even if they are overvalued like MINT,CCT and Areit? Or it is okay as long as the higher finance cost resulted in higher DPU? From the table below we can see that Mapletree's REITs, with their higher finance cost, they manage to grow their DPU over the pass 3 years compare to the rest, even better than Areit.

* Base on Last 12 Months

From this exercise, Mapletree really impress me with their growth. MLT might be a better choice than FLT and MINT compare to Areit. Most Reits' borrowing cost has actually came down instead of flying northwards.

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