Singapore REIT Fundamental Analysis Comparison Table May 17 – 2020

Technical Analysis of FTSE ST REIT Index (FSTAS8670)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) changes from 698.05 to 745.45 (+6.8%) compared to last month update. REIT Index has rebounded 26.42% as of May 15 closed after hitting the recent high of 776 (c.33% rebound from the bottom).

Currently the REIT index is going through a minor correction but still trading in a uptrend channel. Immediate support at about 740 (channel support) followed by 720 (previous resistance turned support)

The REIT index is testing the Immediate Resistance now at about 750 which is the 20D & 50D SMA dynamic resistance. As such, we have to keep a close eye in the next few days to see whether the uptrend is still in tact (if break the 20D & 50D SMA resistance) or the end of the uptrend (break the support at 720).

Previous chart on FTSE ST REIT index can be found in the last post Singapore REIT Fundamental Comparison Table on April 8, 2020.

 

 

Fundamental Analysis of 40 Singapore REITs

The following is the compilation of 41 REITs in Singapore with colour coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio. This gives investors a quick glance of which REITs are attractive enough to have an in-depth analysis. DPU Yield for Elite Commercial REIT, United Hampshire REIT are projections based on the IPO prospectus.

 

  • Note 1: The Financial Ratio are based on past data and there are lagging indicators.
  • Note 2: This REIT table takes into account the dividend cuts due to COVID-19 outbreak. Yield is calculated trailing twelve months (ttm), therefore REITs with delayed payouts might have lower displayed yields.
  • Noted 3: Distribution Yield, NAV, Gearing Ratio would probably be adjusted moving forward.
  • Note 4:  Historical Price/NAV High and Low information is available here.
  • Note 5: Additional financial ratio such as WALE, WADM, All in Interest Cost, Interest Coverage Ratio, Unsecured Loan %, Fixed Interest %, Geographical location of the properties, etc have been compiled and updated monthly in Kenny’s Enhance REIT table.
  • Note 6: Some REITs opted for semi-annual reporting.
  • Note 7: MAS has raised the Gearing Limit from 45% to 50% on April 16. The implementation of Interest Coverage Ratio (ICR) > 2.5x has been deferred to Jan 1, 2022. See the announcement Higher Leverage Limit and Deferral of Interest Coverage Requirement by MAS.

 

  • Price/NAV increased from 0.80 to 0.84 (Singapore Overall REIT sector is very undervalued now).
  • Distribution Yield decreased from 9.64% to 7.68% (take note that this is lagging number). About 50% of Singapore REITs (21 out of 41) have Distribution Yield > 7%. Do note that these yield numbers are based on current prices taking into account delayed distribution/dividend cuts due to COVID-19.
  • Gearing Ratio increased from 35.39% to 36.47%.  31 out of 42 have Gearing Ratio more than 35%. In general, Singapore REITs sector gearing ratio is healthy. Note: Gearing may be affected (ie. potential increase) as the valuation of the portfolio would be reduced.
  • The most overvalued REITs are Keppel DC REIT (Price/NAV = 2.06), followed by Parkway Life (Price/NAV = 1.63), Mapletree Industrial Trust (Price/NAV = 1.51), Mapletree Logistic Trust (Price/NAV = 1.50) and Ascendas REIT (Price/NAV = 1.34).
  • The most undervalued REITs (based on NAV) are Eagle Hospitality Trust* (Price/NAV =0.15), followed by Lippo Malls Indonesia Retail Trust (Price/NAV = 0.47), ARA Hospitality Trust (Price/NAV = 0.44), Far East HT (Price/NAV = 0.53) and Starhill Global (Price/NAV = 0.52)
  • The Highest Distribution Yield (TTM) is Eagle Hospitality Trust* (25.39%) followed by Lippo Malls Indonesia Retail Trust (13.64%), ARA Hospitality Trust (11.23%) and Soilbuild Business Trust (10.55%). Reminder that these yield numbers are based on current prices taking into account delayed distribution/dividend cuts due to COVID-19.
  • The Highest Gearing Ratio REITs are Lippo Malls Trust (42.1%), ESR REIT (41.7%), ARA Hospitality Trust (41.0%) and ARA Logos Log Trust (40.8%) (previously Cache Log Trust).
  • Top 5 REITs with biggest market capitalisation are Ascendas REIT ($10.49B), Mapletree Logistics Trust ($6.92B), CapitaMall Trust ($6.42B), Mapletree Commercial Trust ($5.96B) and Capitaland Commercial Trust ($5.83B)
  • The bottom 3 REITs with smallest market capitalisation are Eagle Hospitality Trust ($119M), ARA Hospitality Trust ($213M) and Elite Commercial REIT ($224M)

Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. To learn how to use the table and make investing decision, Sign up next REIT Investing Workshop here to learn how to choose a fundamentally strong REIT for long term investing for passive income generation.

*Eagle Hospitality Trust is currently suspended

 

Interest Rate Watch

 

  • 1 month decreases from 0.99000% to 0.31500%
  • 3 month decreases from 1.01000% to 0.62325%
  • 6 month decreases from 1.77000% to 0.81225%
  • 12 month decreases from 1.43887% to 1.26166%

 

Summary

Fundamentally the whole Singapore REITs is undervalued now based on simple average on the Price/NAV. The big cap REITs rebounded quickly after the huge REIT crash. Valuation are very attractive across all the REITs but do take note that NAV is lagging. NAV would probably be reduced caused by the devaluation of property value. We have seen the NAV of some REITs are adjusted downward from the latest earning release or business update.

The most impacted sectors are Hospitality and Retail Malls and we see huge sell down over the past few weeks. Keppel DC REIT, Parkway Life REIT, Ascendas REIT, Mapletree Logistic Trust and Mapletree Industrial Trust are holding well during this sell off.

Yield spread (reference to 10 year Singapore government bond of 0.71%) has reduced from  8.54% to 6.97%. The risk premium are very attractive to accumulate slowly in stages to lock in the current valuation and long term yield after the recovery.

Technically the REIT Index is currently trading at the critical juncture sandwiched between the critical resistance and support. Breaking anyone of the them will set the new direction of the REIT index in the next few days.

You can listen to my recent MoneyFM89.3 Radio Interview here for more insights.

 

I was invited by MAL Academy as guest speak on Facebook Live (Mandarin) to share Risk or Opportunity to hold REITs on May 19 (Tuesday) 8pm.

https://www.facebook.com/MALACADEMY

 

 

If you do not have any knowledge on REIT Investing, you can check out My next Singapore REIT investing course . https://mystocksinvesting.com/course/singapore-reits-investing/

If you do not have time to learn all the basic, or you want to kick start your REIT portfolio within 1 month, I can help you to construct a REIT portfolio with a fee.  You can just sit back, relax and wait for the dividend to come it as I will be doing all the job in managing your REIT portfolio. For REIT Portfolio Consultation, please drop me an email marubozu@mystocksinvesting.com

You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

 

Money and Me: Will revenge spending help REITS?

Interview with MoneyFM89.3 this morning. Find out the 3 Episodes of COVID19-REIT Series in the interview.
Kenny Loh Independent Financial Advisor REIT Money FM
We take the pulse of the S-REIT index, identify sweet spots and dive into the area of valuing REITs at the critical moment when countries decide how best to reopen economies. Michelle Martin discusses this and more with Kenny Loh, REIT Specialist and Independent Financial Advisor.
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Kenny Loh is a Senior Consultant and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair. 
Kenny Loh can be contacted through kennyloh@fapl.sg for Investment Portfolio Review, REIT Portfolio Consultation and Investment Planning.

How Does The Smith Manoeuvre Work And Why Is It Crucial For Your Dividend Investing Strategy?

Author: John Adams

 

We all deserve a dignified retirement. However, the Canadian Pension Plan and Old Age Security don’t have the buying power they once had. If you’re in your 30s or older, you’re likely feeling the heat. The cost of living keeps rising, leaving less money for RRSP contributions.

Tough times call for creative measures, If you own your home, you can tap your most significant asset to supercharge your retirement savings. By employing the Smith Manoeuvre, you can use your home equity to invest in dividend-bearing stocks.

In this post, we’ll fill you in on the basics on this cheeky bit of financial jiu-jitsu.

 

What Is The Smith Manoeuvre?

The Smith Manoeuvre is an investment strategy crafted by financial planner Fraser Smith. Decades ago, his clients lamented the fact that mortgage interest in America was tax-deductible, but not in Canada. So, he did some digging into Canadian tax law to see if he could find a way around this roadblock.

After months of study, he succeeded. While interest on mortgage payment wasn’t tax-deductible in Canada, interest on investment loans was. After using this strategy to significant effect with his clients, he released a book on the subject in 2002.

It was a niche success, selling 55,000 copies. But even more importantly, it influenced a generation of mortgage brokers and financial planners. They adopted the Smith Manoeuvre en masse, and convinced their clients to redistribute roughly 20% of Canadian mortgage debt onto lines of credit.

 

How Can I Use The Smith Manoeuvre To Invest In Dividend Stocks?

So, you can convert your mortgage debt into line-of-credit debt. But, how does that make your mortgage debt tax-deductible? As briefly as we can put it, here’s the Cole’s Notes version of the Smith Manoeuvre.

Start by making an appointment with your bank. In it, ask to convert your mortgage loan into a re-advanceable mortgage. In a re-advanceable mortgage, a home equity line of credit accompanies the primary mortgage loan. As you pay down your mortgage, the amount of credit available increases.

Use your line of credit to purchase income-bearing investments like dividend stocks. As you pay down your mortgage, you gain more room to invest in these equities. As you borrow more using your line of credit, your interest payments will increase.

However, Canadian tax law allows you to deduct interest from investment loans from your taxable income. Done right, this will result in a bigger tax refund. Use the proceeds to make a sizable extra payment on your mortgage. Repeat the cycle, and you’ll significantly reduce the life cycle of your home loan. At the same time, you’ll dramatically increase the funds available within your line of credit.

From there, it snowballs. Before you know it, you’ll have paid off your mortgage early. At the same time, you’ll also have a significant portfolio of income-bearing dividend stocks.

Clear as mud? If you’re still not 100% clear on how it works, check out the Smith Manoeuvre bible for dividend stock investing. This guide explains this investment strategy in a way that even financial laypeople can understand.

 

Employing The Smith Manoeuvre Is Crucial To Your Investing Success

If you invest in an RRSP, chances are good you’re a buy-and-hold investor. For years, this method has been held up as the “One True Path To Wealth” by followers of gurus like Warren Buffett.

However, this methodology has a serious flaw – it relies on hope and time. Unlike day traders, who profit immediately from their efforts, buy-and-holders must wait decades to reap the fruit of their labours.

But isn’t day trading risky? It sure is. But buy-and-hold investing also comes with risk. If you aren’t aware of them, ask those who were ready to retire in 2008. The stock market collapse that year erased decades of gains, forcing millions to extend their working careers.

So, what other options are there? In a word, dividend stocks. Dividend stocks pay their holders a set amount per share quarterly. The more you own of a dividend-bearing stock, the more you earn.

Best of all, dividend payments are mostly inelastic. When market corrections hit, they are usually unaffected. In bad crashes, the stock issuer may cut back their rate, but only rarely is it suspended. In all but the worst of times, you get paid.

Sounds good, right? Sadly, the average Canadian investor struggles to invest enough to make dividend stocks pay a worthwhile return. This is where the Smith Manoeuvre comes in. By leveraging the biggest asset you own, you can increase the size of your dividend portfolio at an unprecedented rate.

In this way, the Smith Manoeuvre allows you to build a passive income machine. Together with a 100% paid-off home, it offers you the rarest of all birds: true financial freedom.

 

What Are The Risks Of The Smith Manoeuvre?

Nothing worth doing is easy. While the Smith Manoeuvre has proven itself to be an effective creator of wealth, we mustn’t ignore its reliance on leverage.

No market goes up in a straight line forever. Countless housing and market downturns have occurred in modern history. When booms go bust, your home equity can evaporate. In bad recessions, dividend income can drop.

And then, there’s your primary source of income. In a downturn, you risk losing your job. If this  happens, your ability to service loan payments required by the Smith Manoeuvre may be compromised. Home equity loans are secured – to gain access to funds, you put up your house as security.

Miss enough payments and the bank could seize your property. It’s this scary reality that dissuades many from adopting the Smith Manoeuvre. However, if you plan for worst-case scenarios (saving up emergency funds) and are realistic about the long-term performance of stocks, you can significantly reduce these risks.

 

Leverage Your Home To Create Real Wealth

For most, our home is the biggest asset we own. Why not leverage it to build something even bigger? Thanks to the Smith Manoeuvre, countless Canadians have achieved the financial freedom offered by dividend-bearing investments.

By following this strategy responsibly, you can achieve the same.