Sell Alert: 2 REITs That Could Lead To Large Losses

seekingalpha07-22

Not all REITs are worth buying.Management and conflicts of interest are common issues.Here are 2 REITs that I ended up selling at a loss. Martin Barraud Not all my REIT (VNQ) investments are ...

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Martin Barraud Not all my REIT (VNQ) investments are ...</p>\n\n<a href=\"https://seekingalpha.com/article/4705421-2-reits-could-lead-to-large-losses\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sell Alert: 2 REITs That Could Lead To Large Losses</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSell Alert: 2 REITs That Could Lead To Large Losses\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-22 20:15 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4705421-2-reits-could-lead-to-large-losses><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Not all REITs are worth buying.Management and conflicts of interest are common issues.Here are 2 REITs that I ended up selling at a loss.   Martin Barraud Not all my REIT (VNQ) investments are ...</p>\n\n<a href=\"https://seekingalpha.com/article/4705421-2-reits-could-lead-to-large-losses\">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":"CFA.SI","symbol_name":"NikkoAM-STC Asia REIT","start_time":0,"source_url":"https://seekingalpha.com/article/4705421-2-reits-could-lead-to-large-losses","article_id":"2453761721","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/109350551/image_109350551.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2453761721","pubTimestamp":1721650500,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Despite the crisis, Suntec's NAV per share has held up well, and as we p","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"CFA.SI":"NikkoAM-STC Asia REIT","BK4185":"保健护理机构","FRT":"FRT信托","BK4203":"医疗保健房地产投资信托","BK4588":"碎股","CFA":"VictoryShares US 500 Volatility Wtd ETF","VNQ":"不动产信托指数ETF-Vanguard","BK4080":"零售业房地产投资信托","UHS":"Universal Health Services Inc Cl","BK4231":"零售房地产信托","BK4225":"医疗保健房地产信托","UHT":"Universal Health Realty Income T","BK4585":"ETF&股票定投概念","HR":"医疗保健房地产信托"},"translate_title":"卖出警报：2个可能导致巨额损失的房地产投资信托基金","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CFA":1,"CFA.SI":1,"FRT":1,"HR":1,"UHS":1,"UHT":1,"VNQ":1},"content_text":"Not all REITs are worth buying.Management and conflicts of interest are common issues.Here are 2 REITs that I ended up selling at a loss.   Martin Barraud Not all my REIT (VNQ) investments are successful. We take risks to earn returns, and sometimes risk factors will play out, and at other times, I also make mistakes in my analysis. But each loss has also served as a valuable lesson, and in today's article, I will give you the chance to learn from my mistakes so that you don't have to learn the hard way like I did. Here are two of my most disappointing REIT investments in recent years: Suntec REIT (T82U / OTCPK:SURVF) This management team totally ruined this REIT for me. When we initiated our position in the REIT, they owned a small portfolio of trophy assets in Singapore, but they were priced at a discount to their net asset value and offered an above-average yield for an S-REIT. Therefore, the thesis was very simple. Suntec REIT allowed us to buy an interest in trophy assets in Singapore, which is the safe haven of Asia, offering great diversification benefits to our international portfolio. I was also very familiar with their biggest asset, Suntec City Mall, which I have visited at least 10 times.   Suntec REIT But then the management decided to expand abroad. They first made some acquisitions in Australia, and later they even expanded to the UK. Making matters even worse, they bought office buildings (!!!) even as the world was clearly moving to a hybrid work setting and fundamentals were deteriorating. The management likely did this, thinking that they could benefit from the arbitrage in cap rates between Singapore and other foreign markets. Cap rates are ridiculously low in Singapore (just like in Switzerland) with prime assets selling at 3-4% cap rates even in today's environment. Therefore, even if they issued stock at a 20-30% discount to their net asset value, they could still earn a positive spread by acquiring office buildings in Australia or the UK at a 6-7% cap rate. But where the management failed is that they did not recognize that this could have a negative impact on their market sentiment. As we wrote in 2021: \"We are downgrading Suntec to a Hold rating. Not because of its results, but because of a change in its strategy that we do not appreciate. So far, Suntec has been a near pure-play investment on trophy properties in Singapore. We invested in Suntec because it gave us this specific exposure. However, now Suntec is aggressively expanding into other markets. First it was Australia, which we tolerated, but now they bought a property in London, which makes no sense to us. We don't like the expansion to Australia but at least Australia is close to Singapore and the management knows the market, but London is way out of their circle of competence. This recent move indicates poor management to us and therefore, we don't expect to buy more shares. Why not sell? Despite the crisis, Suntec's NAV per share has held up well, and as we put the crisis behind, we expect its valuation to expand closer to its NAV. As that occurs, we will consider selling our position.\" Suntec went from being a pure-play on trophy Singaporean assets to being a globally diversified REIT with no specialization, no competitive advantage, or anything else that would be exceptional about it. It also doesn't help that they funded their acquisitions with lots of debt and their foreign assets are today performing a lot worse than their Singaporean trophy assets, but is that even a surprise? So I am very frustrated about Suntec. I have no doubt that this strategy has hurt its market sentiment, and it is well-justified. The management essentially ruined the reputation of the REIT by their greed for expansion. Investors who wanted exposure to Singapore ended up selling the stock, and now there is no one to pick up the pieces. In hindsight, I should have just sold earlier, but oh well... Thankfully, this was a tiny position for us. It was our smallest international holding, representing just 0.5% of our International Portfolio, and therefore, the ~12% negative total return on this position did not have any major impact on our portfolio performance. Universal Health Realty Income (UHT) I invested in UHT in late 2021 because of two key reasons: For one, the company was much cheaper than its close peers. The main reason for this appeared to be its external management structure, but I was not too worried about that because the manager owned a large stake in the REIT, which, I thought, would do a good job of aligning the interests of the REIT and its manager. Secondly, the REIT offered a relatively high dividend yield, and it had one of the longest dividend track records of the entire REIT sector, only second to Federal Realty Investment Trust (FRT), at 35 years. Seeking Alpha This made it ideal for our Retirement Portfolio because it offered high and safe dividend income, and we thought that it could also enjoy some upside as it eventually reprices at a valuation that's more comparable to its close peers. A potential catalyst for that was the future internalization of the management and/or further insider purchases by the top management team. But a year alone, I ended up selling at a loss. This loss was about 15%, so it again wasn't the end of the world, but still a disappointment. The reason why I sold my shares is because: (1) The talks of a potential management internalization faded away, and it became increasingly clear that this would never become a real catalyst to unlock value for shareholders. Something unique about UHT is that its manager is actually also its biggest tenant, Universal Health Services (UHS). Therefore, if they let go of their management agreement, they would lose control of their landlord, potentially increasing risks for them down the line. It creates a persistent conflict of interest that warrants a big discount. (2) The dividend was becoming increasingly risky. The company was (and still is!) facing some tenant issues, its cash flow was declining, but the management was reluctant to cut its dividend as it would have ruined a multi-decade track record of dividend growth. But not cutting the dividend would put the long-term financial health of the company at risk because it was not retaining enough cash flow to deal with future potential vacancies, capex requirements, and deleveraging. A bad situation to be in. As a result, the market became increasingly concerned about UHT's future prospects, and it caused its share price to drop lower. But the interesting thing is that its close peer, Healthcare Realty (HR) had dropped even more, causing UHT to trade at a premium relative to HR. Even today, UHT is still priced at a similar valuation and that's despite:  Being externally managed Suffering greater conflicts of interest Owning a weaker portfolio Being much smaller in size Having a riskier balance sheet  I cannot make sense of that and for this reason, I continue to think that UHT is overpriced relative to its peers. If they eventually cut the dividend, it would likely crash a lot lower. Closing Note The REIT sector is vast and versatile, and just because two companies share the REIT acronym does not mean that they have anything in common. So don't make the mistake of buying just any REIT. This is a sector in which you need to be very selective if you want to avoid capital losses.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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