AWP: 13% Yield, Contrarian Play, But There Are Better Choices

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Khanchit Khirisutchalual Introduction: Abrdn Global Premier Properties Fund (NYSE:AWP) is a closed-end fund that was incepted in April 2007. However, the Abrdn group took over the fund in May 2018. ...

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However, the Abrdn group took over the fund in May 2018. ...</p>\n\n<a href=\"https://seekingalpha.com/article/4688701-awp-13-percent-yield-contrarian-play-but-there-are-better-choices\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4529","symbol_name":"IDC概念","start_time":0,"source_url":"https://seekingalpha.com/article/4688701-awp-13-percent-yield-contrarian-play-but-there-are-better-choices","article_id":"2433383044","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1386672296/image_1386672296.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2433383044","pubTimestamp":1714914000,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Khanchit Khirisutchalual Introduction: Abrdn Global Premier Properties Fund (NYSE:AWP) is a closed-end fund that was incepted in April 2007. 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However, the Abrdn group took over the fund in May 2018. The fund's main objective is to provide high current income to its shareholders. Capital appreciation is the secondary objective. The fund's mandate requires it to invest at least 80% of the total assets in real-estate companies or REITs or even the companies that provide financing to real-estate companies. The fund is global in nature and invests all over the world. That said, it has over 60% of investments in the US market, with Japan and Australia coming in second and third place. Other countries in which it is invested are Mexico, the U.K., Singapore, Germany, France, Canada, Hongkong, and a few others. It is nearly 99% invested in the equity of real-estate companies, though its mandate allows it to invest up to 20% in debt securities. As per the fund's literature, \"The Fund seeks high current income and capital appreciation. The Fund seeks high current income and capital appreciation. The Fund's investment objective and some of its investment policies, including its policy of concentrating at least 80% of its managed assets in issuers principally engaged in the real estate industry or real estate financing or which control significant real estate assets, are fundamental and may not be changed without shareholder approval. The Fund will pursue its investment objectives by investing at least 80% of its managed assets in the equity and, to a lesser extent, debt securities of domestic and foreign issuers which are principally engaged in the real estate industry, real estate financing, or control significant real estate assets.\" Other salient features of this fund are as follows:  The fund has been managed by the Abrdn (Aberdeen) fund family since May 2018. The Aberdeen Group is a U.K.-based investment firm managing over $600 billion of assets for institutional and retail clients worldwide. The fund AWP uses leverage. As of 03/31/2024, its leverage stood at 17.72%. Obviously, leverage can enhance the returns in a bull market, but it can also hurt the performance in a down market. Moreover, the past two years have shown us that leverage can lead to a heavy interest burden (which was not an issue in a zero-interest rate environment). The funds' mandate allows it to invest globally. As stated earlier, it is invested 60% in the domestic market and the rest 40% in other countries. It is a globally diversified real-estate equity fund. It currently has 72 holdings (as of Mar. 31, 2024), but so many of its holdings are REITs, which themselves are diversified. Also, it is diversified in the various sectors of the real estate market, with the largest allocation to the Industrial REITs. The top five sub-sectors are Industrial, Retail, data center, Healthcare, and Multi-family Residential, together accounting for 70% of the total assets. The fund pays a monthly distribution. It also follows a 'managed' distribution policy, which can mean that the fund may not always earn enough in investment income and realized capital gains to pay for the distributions. In such cases, it may pay the distributions as ROC (Return of Capital). As of Apr. 29, 2024, the fund under its management had roughly $406 million in total assets with nearly 20% leverage. The net assets accounted for $327 million. The fund is an actively managed fund and has an expense ratio of 1.19% on the net assets (after certain fee waivers), including the 1.17% management fee. After including the interest expense, the total expense ratio stood at 2.22% on net assets (as of Mar. 31, 2024). As of April 29, 2024, its distribution yield on the market price was 12.90% and 12.53% on the NAV. As of April 29, 2024, AWP's market price offered a discount of -2.87% to its NAV. The 3-year average discount is -5.68%, while the 12-month average is -6.90%. The fund's NAV, as of April 29, 2024, stood at $3.83, which is an improvement of 7.28% from its NAV (of $3.57) as of the last annual report (Oct.31, 2023).  Financial Outlook: Let's look at the fund's financial health to see if the fund is earning enough to pay for the distributions. The most recent detailed report that is available to investors is the annual report for the period of Nov. 2022 – Oct. 31, 2023. Here is what it looks like in terms of NII, Distributions, and Net Assets at the beginning and end of the statement period. All amounts are in US $ (except Shares Outstanding); negative amounts are shown inside parentheses, per the Annual report, 12 months ending Oct.31, 2023. We also provide the per-share data and comparison with the year 2022. This report has been outdated for almost six months now, but it is presented to indicate the trend during the last year, which appears to be continuing in 2024. Table-1: Author (Source: AWP's 2023 Annual report, 12 months ending Oct. 31, 2023.) Table-1B: Source: AWP's 2023 Annual Report, 12 months ending Oct. 31, 2023. Net Investment Income: The net investment income (or NII in short) is the net income that a fund earns from its investment in the form of dividends, distributions, and interests or derivatives like options, minus all of the fund's expenses, including management fees, operating expenses, commissions, and interest on leverage, etc. For equity-based funds, especially in high-growth sectors like technology, the NII is not very relevant. However, for fixed-income or bond funds, it is highly relevant. Now, AWP invests in equities of REITs, which generate more generous income than usual dividend companies. As we see in the table below, AWP generated roughly $16 million of income against $40 million of distributions. However, AWP's expenses are too high, especially in the current environment, due to high-interest rates. After all expenses, the NII was only $8 million, which amounts to 20% of the total distribution amount. Also, in the years 2022 and 2023, AWP made capital losses (not capital gains). So, how did they pay the distributions? They paid nearly 80% of the distributions as ROC (return of capital). So, we feel that distribution is very high, but it is not safe. Even if they don't cut the distribution rate, it is definitely destructive to NAV. Also, AWP's NII per share has been in a decline from $0.16 a share to $0.09 a share in 2023. We are not able to analyze the reasons for this decline, but it looks a bit concerning. All that said, things can change tomorrow if the Fed starts cutting the interest rates. Not only will it reduce the interest burden for AWP, but the underlying assets will suddenly become much more valuable. Distributions: The fund follows a 'managed' distribution policy and provides a monthly distribution of $0.04 per share, which comes out to be a yield of 12.90% at current prices (as of 04/29/2024) and 12.53% on the NAV basis. It has paid fairly consistent dividends since 2012 but has reduced the payout by about 20% in July 2019. Since July 2019, it has paid the same amount of $0.04 per share on a monthly basis. So, is the distribution covered? Table-2: Distribution (from 2022-2023) Author Note: We have taken the tax information from the available documents (form 8937) on AWP’s website. However, it may or may not reflect 100% correct information.  The current regular distribution amount is $0.48 per share on an annual basis. We can see in the above table that both in 2022 and 2023, over 90% of the distributions were paid as ROC. Sometimes, ROC may not be bad as some funds use it to gain tax advantages. But at other times, it can be destructive to NAV and the shareholder is being paid his own capital back. We know that the last two years have been very difficult, in addition to the once-in-a-century pandemic in 2020. However, the question that we need to ask is whether AWP can recover to the pre-2019 NAV level once the Fed finally starts cutting interest rates. Though it is difficult to predict anything that lies in the future, AWP has to rise 100% from the current levels to get to 2019 levels. That definitely seems almost unlikely. However, the new investors do not have to shoot for pre-2019 levels. For new investors, after a nearly 13% yield, even if there is a modest rise in NAV, it will be great. However, the other risk is that if the rates stay at current levels for much longer, the fund may be forced to cut the distribution. We think readers already know what happens to the price in the event of a distribution cut. Discount/Premium: The fund is currently trading at a very small discount of -2.87% (to its NAV, as of Apr. 29, 2024), but the average discount during the last five years has varied from -5% to -8%. Below is the five-year history of premium/discount. As visible in the chart, this fund has always been in the discount area. However, since 2021, the discounts have been a bit smaller. More recently, the discount has narrowed even further. Moreover, we should always look at both the premium/discount and the overall valuation of the fund within its sector. Chart-1: AWP – Premium/Discount Chart (over five years) Source: CEFConnect.com Fund's Holdings: The fund is mostly invested in the equities of REITs and other real estate companies. U.S. based companies constitute nearly 60% of the holdings. The number of holdings stood at 72 as of Mar. 31, 2024. The top 10 holdings make up about 42% of the assets. The top 10 holdings as of Mar. 31, 2024, and sector composition are presented below. Some of the top holdings are well-known names, for example, Prologis (PLD), Equinix (EQIX), Welltower (WELL), $Public Storage(PSA-N)$ (PSA), Digital Reality (DLR), Simon Property (SPG), Realty Income (O), and AvalonBay (AVB). It also includes some international names in the top 10, like Goodman Group (OTC:GMGSF) and Mitsui Fudosan Co (OTCPK:MTSFF). Table-3: Source: AWP's Factsheet Source: AWP's Factsheet Performance and Valuation: In the table below, we will compare several performance-related metrics with several other real-estate-focused funds/ETFs. We will also include the S&P500 for the sake of comparison. The following funds are included:  AWP (RQI) Cohen & Steers Quality Income Realty (RFI) Cohen & Steers Total Return (VNQ) Vanguard Real Estate Index Fund ETF (SPY) S&P-500 Trust  Table 4: (Data - period as specified, otherwise as of Mar. 31, 2024)   Item Desc. AWP RQI RFI VNQ S&P 500   Dividend Yield% (as of 04/29/2024) 12.90% 8.67% 8.63% 4.27% 1.32%   Discount/Premium -2.87% -5.87% +1.09% n/a n/a   Annualized Return [CAGR] From 2008-2023 2.64% 7.80% 8.21% 6.64% 9.69%   Max. Drawdown (2008-2023) -76.1% -86.5% -65.7% -62.5% -48.5%   Std. Deviation (2008-2023) 27.9% 38.2% 24.7% 23.2% 16.2%   10-Year CAGR (NAV, 2014-2023) 2.41% 9.79% 8.24% 7.36% 11.88%   5-Year CAGR (NAV, 2019-2023) 2.84% 10.0% 8.60% 7.31% 15.53%   3-Year CAGR (NAV, 2021-2023) -1.58% 7.49% 5.68% 5.03% 9.85%   1-Year CAGR (NAV, 2023-2023) 12.05% 15.11% 12.17% 11.79% 26.11%   Fees (excluding interest) 1.22% 1.42% 0.94% 0.12% 0.09%   Leverage 20% 31% 0% 0% 0%   No of holdings 72 196 171 162 504   Assets (total) $406 million $2.29 Billion $292 Million $64.9 billion  $508 Billion   Allocation Real-estate leveraged CEF, 99% Equity, 60% Domestic Real-estate leveraged CEF, 80% Equity, 20% Pref/Bonds, 80% Domestic Real-estate CEF, 80% Equity, 20% Pref/Bonds, 80% Domestic Diversified Real Estate ETF Largest 500 US companies   Click to enlarge Note: Some of the data (e.g., number of holdings and leverage) may not be current. To start with, we would like to point out that none of these funds are exactly the same in all aspects. Each one of them has their specific attributes and flavors. Besides AWP, only RQI uses leverage. That said, in overall comparison, AWP's past performance looks awful, whichever period you choose. We know that the Abrdn group took over the fund in 2018, so we would have expected this to perform better after that period. However, the fund's performance has not improved during the period 2019-2023. We also know that since 2019, there have been a lot of headwinds for the real estate sector, and every other fund has faced a similar situation. So, it is not fair to compare the performance of a real estate fund with the S&P500. However, even if we look at the most diversified real-estate benchmark, VNQ, it outperformed AWP by a wide margin for every period except the year 2023. In our table above, only RQI uses leverage (like AWP); however, RQI's performance has been much better. However, we must keep in mind that RQI had the worst drawdown in 2008-09. Risk Factors: Investors need to be aware of certain risk factors that are associated with this fund and CEFs in general. Risk factors could be summarized as follows:  AWP fund carries nearly 20% leverage, and there is a substantial interest burden that it has to pay. Moreover, its underlying holdings are highly sensitive to the direction of interest rates. However, this is not unique to AWP. As of now, the Fed has been indicating higher rates for a longer time. The fund has nearly 40% exposure to international real-estate stocks. Overall, it is supposed to be a good thing in terms of diversification. But at the same time, it adds to the country-specific risk, as well as currency risks. The general risks due to the worsening geopolitical situation. Market risks: There is still some possibility of a recession in 2024 or 2025, though most market participants expect a soft landing or no landing at all, but the risk cannot be ruled out. If a recession does happen, it will impact the underlying securities of this fund as well.  Concluding Thoughts:  As stated earlier, AWP's past performance has been lackluster (if not awful) for most time frames that we covered. Though it would not be fair to compare it to the S&P500, we have provided the comparison with other real-estate funds like RQI (with leverage), RFI (without leverage), and VNQ (the diversified real-estate ETF). In our opinion, the main reason that has hurt its NAV performance is that it distributes too much that it cannot afford. Sure, leverage is adding to the problems in this environment. We think RFI is the safe choice in the current environment. RQI has some added risks due to high leverage, but it still appears to be better than AWP if one wants to have a contrarian play. We are not suggesting that AWP will cut the distributions, but it certainly seems to be paying more than it can afford. So, a potential distribution cut adds to the downside risk. 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