Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) decreased from 735.33 to 714.12 (-2.88%) compared to last month’s update. The REIT index is currently trading within a descending triangle with the pink lines showing the  resistance and support. This is a medium-term consolidation pattern until the next big move (upside breakout or downside breakout).

• Short-term direction: Sideways 
• Medium-term direction: Down (50D SMA is sloping down)
• Long-term direction: Down (200D SMA is sloping down)
• Immediate Support at 710 (Descending Triangle support)
• Immediate Resistance is Descending Triangle Resistance & 200D SMA Dynamic Resistance (about 740)

2 years FTSE REIT Index Chart

Previous chart on FTSE ST REIT index can be found in the last post: Singapore REIT Fundamental Comparison Table on May 14th, 2023.

Fundamental Analysis of 38 Singapore REITs

The following is the compilation of 38 Singapore REITs with colour-coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio.

• The Financial Ratios are based on past data and these are lagging indicators.
• This REIT table takes into account the dividend cuts due to the COVID-19 outbreak. Yield is calculated trailing twelve months (ttm), therefore REITs with delayed payouts might have lower displayed yields, thus yield displayed might be lower for more affected REITs.
• All REITs are now updated with the latest Q1 2023 business updates/earnings.
• I have introduced weighted average (weighted by market cap) to the financial ratios, in addition to the existing simple average ratios. This is another perspective where smaller market cap REITs do not disproportionately affect the average ratios.

Data from REITsavvy Screener. https://screener.reitsavvy.com/

What does each Column mean?

• FY DPU: If Green, FY DPU for the recent 4 Quarters is higher than that of the preceding 4 Quarters. If Lower, it is Red.

• Yield (ttm): Yield, calculated by DPU (trailing twelve months) and Current Price as of June 5th, 2023. Notes:
  • ESR-LOGOS REIT and Paragon REIT: Annualised yield, after taking into account switch to semi-annual distribution declaration. For Paragon REIT: calculated after converting from 13 months of distribution to 12 months.

• Gearing (%): Leverage Ratio.
• Price/NAV: Price to Book Value. Formula: Current Price over Net Asset Value per Unit.
• Yield Spread (%): REIT yield (ttm) reference to Gov Bond Yields. REITs trading in USD is referenced to US Gov Bond Yield, everything else is referenced to SG Gov Bond Yield.

Price/NAV Ratios Overview

• Price/NAV decreased to 0.78. (Weighted Average: 0.78)
  • Decreased from 0.80 in May 2023.
  • Singapore Overall REIT sector is undervalued now.
  • Take note that NAV is adjusted upwards for some REITs due to pandemic recovery.

• Most overvalued REITs (based on Price/NAV)

  • ParkwayLife Reit (C2PU)	1.64
    Keppel DC Reit (AJBU)	1.49
    Mapletree Ind Tr (ME8U)	1.20
    Mapletree Log Tr (M44U)	1.17
    Capitaland Ascendas Reit (A17U)	1.14
    Paragon REIT (SK6U)	1.04

  • Only 6 REITs are overvalued now based on Price/NAV value.
  • No change in the Top 3 compared to last 4 months.

• Most undervalued REITs (based on Price/NAV)

  • Lippo Malls Tr (D5IU)	0.20
    Prime US Reit USD (OXMU)	0.27
    ManulifeReit USD (BTOU)	0.31
    KepPacOakReitUSD (CMOU)	0.38
    ARA HTrust USD (XZL)	0.43
    EC World Reit (BWCU)	0.44

Distribution Yields Overview

• TTM Distribution Yield remained almost the same at 9.08%. (Weighted Average: 6.29%)    
  • Decreased from 9.09% in May 2023.
  • 20 of 40 Singapore REITs have distribution yields of above 7%.
  • Do take note that these yield numbers are based on current prices taking into account the delayed distribution/dividend cuts due to COVID-19, and economic recovery.
  • 9 REITs have a ttm yield of over 10%!

• Highest Distribution Yield REITs (ttm)

  • Prime US Reit USD (OXMU)	31.95
    ManulifeReit USD (BTOU)	27.94
    KepPacOakReitUSD (CMOU)	19.02
    Lippo Malls Tr (D5IU)	14.67
    Elite Commercial REIT GBP (MXNU)	14.66
    UtdHampshReitUSD (ODBU)	13.67

  • Reminder that these yield numbers are based on current prices. This has caused Manulife US REIT and Prime US REIT’s ttm yields to be over 25%.
  • Some REITs opted for semi-annual reporting and thus no quarterly DPU was announced.
  • A High Yield should not be the sole ratio to look for when choosing a REIT to invest in.

• Yield Spread tightened to 6.05%. (Weighted Average: 4.39%) 
  • Tightened from 6.25% in May 2023.

Gearing Ratios Overview

• Gearing Ratio increased slightly to 37.98%. (Weighted Average: 38.37%)    
  • Increased from 37.95% from May 2023.
  • Gearing Ratios are updated quarterly. Therefore compared to last month, only Cromwell European REIT has updated gearing ratios.
  • S-REITs Gearing Ratio has been on a steady uptrend. It was 35.55% in Q4 2019.

• Highest Gearing Ratio REITs

  • ManulifeReit USD (BTOU)	49.5
    Elite Commercial REIT GBP (MXNU)	46.6
    Prime US Reit USD (OXMU)	43.7
    Lippo Malls Tr (D5IU)	42.9
    Suntec Reit (T82U)	42.8
    UtdHampshReitUSD (ODBU)	42.6

Market Capitalisation Overview

• Total Singapore REIT Market Capitalisation decreased by 2.442% to S$94.42 Billion.
  • Decreased from S$96.79 Billion in May 2023.

• Biggest Market Capitalisation REITs (S$):

  • Capitaland Int Com Trust (C38U)	13,369.68
    Capitaland Ascendas Reit (A17U)	11,801.94
    Mapletree PAC Tr (N2IU)	8,756.39
    Mapletree Log Tr (M44U)	8,304.74
    Mapletree Ind Tr (ME8U)	6,083.64
    Frasers Log & Com Tr (BUOU)	4,691.29

  • No change in the rankings since September 2022.

• Smallest Market Capitalisation REITs (S$):

  • Lippo Malls Tr (D5IU)	115.45
    Elite Commercial REIT GBP (MXNU)	147.05
    ARA HTrust USD (XZL)	187.84
    Prime US Reit USD (OXMU)	243.37
    BHG Retail Reit (BMGU)	245.81
    UtdHampshReitUSD (ODBU)	246.13

Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. If you want to know more about investing in REITs, here’s a subsidised 2-day course with all you need to know about REITs and how to start investing in them.

Top 20 Worst Performers of May 2023

Source: https://screener.reitsavvy.com/

SG 10 Year & US 10 Year Government Bond Yield

• SG 10 Year: 2.94% (increased from 2.74%)
• US 10 Year: 3.66% (increased from 3.46%)

Major REIT News in May 2023

Digital Core Reit manager warns DPU could be halved as second-largest tenant goes bust

THE BUSINESS TIMES: The manager of Digital Core real estate investment trust: DCRU 0% (Reit) on Monday (Jun 5) warned that the Reit’s distribution per unit (DPU) could be reduced by about US$0.02 if the annual revenue of its second-largest tenant were to be completely eliminated.

This comes after the tenant, a “global co-location and interconnection provider”, filed for Chapter 11 bankruptcy protection on Sunday. Digital Core’s FY2022 DPU stood at US$0.0398, 4.8 per cent lower than the US$0.0418 forecast.

The Reit manager did not name the tenant, but The Business Times understands it to be Cyxtera, a Nasdaq-listed data centre operator. Dan Tith, chief financial officer of Digital Core Reit’s manager, said: “We want to reassure investors that we have several lines of defence prepared for this scenario and feel very good about the contingency plans we have in place.”

According to the Reit manager, the tenant in question represents about US$16.3 million or 22.4 per cent of the Reit’s annual rental revenue. Read More

Manulife US Reit to sell Phipps Tower; exclusivity period for Mirae lapses

THE BUSINESS TIMES: Manulife US Reit has entered into a letter of intent to sell Phipps Tower in Atlanta, Georgia, to The Manufacturers Life Insurance Company.

The purchase consideration should be no more than the average of two independent valuations commissioned by the Reit’s manager and its trustee, DBS Trustee.

On Wednesday (May 24), the Reit’s manager said its proposed divestment aims to “enhance unitholder value”. It intends to redeploy proceeds into debt repayment or capital expenditure such as tenant incentives.

The Reit’s manager said it plans to enter into a definitive agreement for Phipps Tower’s disposal by Jun 30. It will also waive the disposal fee. Read More

Additional Note: MUST’s gearing ratio has been at 49.5%, which is merely 0.5% lower than the 50% gearing limit for REITs. The selling of Phipps Tower is an effort towards debt repayment, in order to lower MUST’s gearing ratio.

Summary

Fundamentally, the whole Singapore REITs landscape remains extremely undervalued based on the average Price/NAV (at 0.78) value of the S-REITs, with a very attractive DPU yield of 9.08%! (Weighted average yield of 6.29%). Do take note that NAV and DPU are lagging numbers.

Performances over this month have been very mixed. There are poor performances by both large and small cap REITs, as well as good performances by both large and small cap REITs.

(Source: https://stocks.cafe/kenny/overview)

Yield spread (in reference to the 10-year Singapore government bond yield of 2.94% as of 12th May 2023) tightened from 6.25% to 6.05%. (Weighted Average Yield Spread is currently 4.39%, which is still attractive).

Technically, FTSE ST REIT Index is trading within a Descending Triangle, which is a medium-term consolidation chart pattern.  It is predicted the REIT index will be range bound for a while until the next breakout (the next interest rate decision is on June 13-14). Based on current forecast, there is an 80.5% probability US Fed will keep the current interest rate at 5.25% and this show a potential peaking of the interest rate in 2023. Cutting interest rates will favor the real estate and REITs sector.

Based on the current overall S-REIT P/NAV of 0.78 and current average DPU yield of 9.08%, the Singapore REITs sector is extremely attractive and possibly has bottomed. 2H 2023 would be a cautiously bullish for S-REITs but investors have to be very selective with fundamentally strong S-REITs. This is due to the probable reversal of interest rates, which can be a positive catalyst for the real estate sector.

Note: This above analysis is for my own personal research and it is NOT a buy or sell recommendation. Investors who would like to leverage my extensive research and years of Singapore REIT investing experience can approach me separately for a REIT Portfolio Consultation.

Kenny Loh is a Wealth Advisory Director 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, Digital Assets 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 Symposium and Invest Fair.  You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement