As you manage your portfolio over different phases of life, you tend to find what sticks. What is predictable, what you can control and what you can't.
One key thing that always stood out was the sustainability of real estate as an investment. As a friend of mine (who happens to be a real estate lawyer) once said - based on his view of the world, real estate is one of the asset that is sure to endure and make money.
I find the saying quite true, property acts as a good store of wealth, it is linked to the real economy being creating a valued proposition of shelter and comfort. A place where people enjoy a certain lifestyle of living and the such.
It is no wonder why Singaporeans are so fanatic about property. Even the government had to step in recently to curb the enthusiasm. En-bloc fever, rising developer bids, easy money - lots of these contributed to the recovery of SG property market. Yet the truth is that SG property remains very affordable as compared to overseas market on a cost to median income ratio. Have a read below if you don't believe me (https://sbr.com.sg/residential-property/news/chart-day-singapore-bucks-trend-higher-price-income-ratio)
But for now, back to the crux of the matter.
Post-cooling measures (and quite timely) as well, people begun to focus their minds on the rising interest rates and the REITs market. Interest rate in truth is gravity on all assets. Yes, you heard right - ALL assets.
The reality is that the easy liquidity of the last 10 years have resulted in bubbles in many countries. These has created artificially high prices in some areas and could even attributed to the stock market highs we seen in 2017 and the bitcoin mania.
Now that the Fed has raised interest rates to 2-2.25% and guided for another 5 increases over the next 3 years. We are facing the new game of how to invest.
As Warren Buffett said, nothing in investing really changed over the last century. The game remains pretty much the same - look for quality companies run by great management and buy them at cheap prices.
In the Singapore market, two of the favorite industrial reits are Ascendas REIT and Mapletree Industrial Trust. In quantifying the two of very similar nature, I begun to see that there may be some value that is beginning to emerge.
For me personally, I enjoy looking to see how each stock piece fits into my puzzle. To create a well-tuned wealth machine, one has to often prune the Bonsai tree, slowly but surely - you begin to appreciate how getting rid of bad stocks and adding to good ones help build your portfolio.
On the metric side, A-REIT beats Mapletree Industrial Trust on 8 out of 10 metrics. Some of it may be repetitive and quite clearly A-Reit deserves the higher credit rating.
If I had to drive it down to 3 key questions, they are:
1. Is the debt tenor of the company matching the WALE as closely as possible?
- In this case, the WALE of both companies outstrip the debt tenor. Typically this is fine for a falling rates environment but in a rising rate environment, this may be a negative.
2. Is the debt hedged against rising rates?
- Yes, fully hedged on the duration for A-Reit for 72.4%
- Partially hedged for MINT for 2.7 years for 77.9%
(in this case, both are fine)
3. Which company is in better shape for the long run?
- Both look like fantastic companies. I quite like MINT for its data center exposure in USA but even Ascendas have no shortage of opportunities with a better diversified portfolio.
- Both companies also have a tailwind of recovering economy in terms of industrial activity and improving rents
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| Fig 1. Metrics of A-REIT v MINT |
The Author has no exposure to either share at the current point of time but may be initiating some on A-REIT in time to come.
