Singapore REIT Monthly Update (March 5th, 2023)

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Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) decreased from 748.41 to 734.05 (1.91%) compared to last month’s update. After failing to break above the previous support turn resistance zone of 790-800 on February 3rd 2023, the S-REIT Index is currently retracing back and trading between the 730-744 zone for the past few weeks.

  • Short-term direction: Sideways (trading between 730-744 zone)
  • Medium-term direction: Sideways (50D SMA is sideways)
  • Long-term direction Down (200D SMA is sloping down)
  • Immediate Support at 730, followed by 714.
  • Immediate Resistance at 744, followed by 790-800 zone.

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 February 11th, 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 highlighted in yellow-green. All are now updated with the latest Q4 2022 business updates/earnings.
  • SPH Reit has been renamed to Paragon REIT since January 3rd, 2023.

Data from StocksCafe REIT Screener. https://stocks.cafe/kenny/advanced

 

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 March 3rd 2023. Notes:
    • Mapletree Pan Asia Commercial Trust: Annualised yield. MPACT has recently reverted to quarterly distribution.
    • Paragon REIT: Annualised yield. 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 0.84.      
    • Decreased from 0.85 in February 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)
    • Parkway Life REIT (Price/NAV = 1.77)
    • Keppel DC REIT (Price/NAV = 1.43)
    • Mapletree Industrial Trust (Price/NAV = 1.24)
    • Mapletree Logistics Trust (Price/NAV = 1.19)
    • Capitaland Ascendas REIT (Price/NAV = 1.17)
    • Paragon REIT (Price/NAV = 1.05)
    • Only 7 REITs are overvalued now based on Price/NAV value.
    • No change in the Top 6 compared to last month.
  • Most undervalued REITs (based on Price/NAV)
    • Lippo Malls Indonesia Retail Trust (Price/NAV=0.38)
    • EC World REIT (Price/NAV = 0.48)
    • ARA US Hospitality Trust (Price/NAV = 0.49)
    • Manulife US REIT (Price/NAV = 0.50)
    • Prime US REIT (Price/NAV = 0.51)
    • Keppel Pacific Oak US REIT (Price/NAV = 0.56)

Distribution Yields Overview

  • TTM Distribution Yield increased to 7.70%.        
    • Increased from 7.33% in February 2023.
    • 17 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)
    • Manulife US REIT (17.27%)
    • Prime US REIT (17.01%)
    • EC World REIT (13.23%)
    • Keppel Pacific Oak US REIT (12.75%)
    • United Hampshire REIT (12.00%)
    • Lippo Malls Indonesia Retail REIT (11.92%)
    • Reminder that these yield numbers are based on current prices taking into account delayed distribution/dividend cuts due to COVID-19.
    • 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 widen slightly to 4.21%.    
    • Widened from 4.12% in February 2023.

Gearing Ratios Overview

  • Gearing Ratio increased slightly to 37.54%.     
    • Increased from 37.38% from February 2023.
    • Gearing Ratios are updated quarterly. 
    • S-REITs Gearing Ratio has been on a steady uptrend. It was 35.55% in Q4 2019.
  • Highest Gearing Ratio REITs
    • Manulife US REIT (48.8%)
    • Elite Commercial Trust (45.8%)
    • Lippo Malls Indonesia Retail Trust (44.6%)
    • Suntec REIT (42.4%)
    • Prime US REIT (42.1%)
    • United Hampshire US REIT (41.8%)

Market Capitalisation Overview

  • Total Singapore REIT Market Capitalisation decreased by 1.94% to S$96.84 Billion.
    • Decreased from S$98.76 Billion in February 2023.
  • Biggest Market Capitalisation REITs:
    • Capitaland Integrated Commercial Trust ($12.53B)
    • Capitaland Ascendas REIT ($11.68B)
    • Mapletree Pan Asia Commercial Trust ($9.01B)
    • Mapletree Logistics Trust ($8.08B)
    • Mapletree Industrial Trust ($6.40B)
    • Frasers Logistics & Commercial Trust ($4.64B)
    • No change in the rankings since September 2022.
  • Smallest Market Capitalisation REITs:
    • Lippo Malls Indonesia Retail Trust ($200M)
    • BHG Retail Trust ($249M)
    • EC World REIT ($292M)
    • ARA Hospitality Trust ($303M)
    • Elite Commercial REIT ($361M)
    • United Hampshire REIT ($369M)

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 the Month in February 2023

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

 

SG 10 Year & US 10 Year Government Bond Yield

  • SG 10 Year: 3.42% (increased from 3.13%)
  • US 10 Year: 3.96% (increased from 3.74%)

 

Major REIT News in January 2023

S-REITs earnings/results for Q4 2022 have wrapped up

All S-REITs have reported their earnings for Q4 2022. 22 out of 38 REITs (about 58%) reported YoY growth in DPU.

 

 

S-REIT Summary Charts

Below are 3 S-REIT Summary Charts. These show the current state of the S-REIT market.

 

Yield vs Price/NAV Chart. Size of bubbles represent market cap.

 

Gearing vs ICR Chart. Size of bubbles represent market cap.

 

Price/NAV Chart, with comparison between sectors.


Summary

Fundamentally, the whole Singapore REITs landscape remains undervalued based on the average Price/NAV (at 0.84) value of the S-REITs, with a very attractive DPU yield of 7.70%! The valuation and DPU yield are back to attractive level due to the correction in February probably caused by the increase of 10 year risk free rate.

It has been a bearish month for S-REITs. Poor performers include Capitaland Integrated Commercial Trust (-10.43% decline in market cap), Prime US REIT (-25.96%), Manulife US REIT (-14.06%), EC World REIT (-21.74%) and Keppel Pacific Oak REIT (-16.51%). 

 

 

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

Yield spread (in reference to the 10-year Singapore government bond yield of 3.42% as of 5 Mar 2023) widened slightly from 4.12% to 4.21%. 

Technically, FTSE ST REIT Index is trading in a short-term uptrend channel (higher high, higher low chart pattern) since finding the bottom in Oct 2022. Currently the REIT index is consolidating between 734-744. The short-term uptrend is still intact unless the 714 support is broken. If 744 resistance is broken, it is expected the S-REIT index to continue the bullish rebound with the next target 790-800 to breakout to enter into bull market. 

Based on the current overall S-REIT P/NAV of 0.84 and the potential peaking of interest rate in Q2/Q3 2023, the probability to have a severe crash in S-REIT is low unless we are entering into severe recession with big drop in DPU and US Fed continues to increase the interest rate fiercely beyond 6%.) 2023 would be a cautiously bullish for S-REIT with fundamentally strong S-REITs.

 

 

 

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 an Associate 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

Continue ReadingSingapore REIT Monthly Update (March 5th, 2023)

7 Strengths That Make Singapore Asia’s Most Exciting Biotech Hub

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In the space of just a few decades, Singapore’s biotechnology industry has become the most important in Asia, and arguably the one with the most potential for future growth. With its exceptionally strong R&D capabilities, the city state’s biotech sector is well-placed to breed innovation and attract future-thinking biotech firms.

Indeed, Singapore is already a linchpin in global biotechnology and pharmaceutical research, being home to the Asian headquarters for many of the world’s most recognised biotechnology companies as well as a growing number of promising biotech startups. If things continue as is, the country’s biotech sector may match or exceed other major Asian rivals in producing patents and creating market-ready biotechnology products.

Here are some of the reasons Singapore’s biotechnology scene is the most exciting in Asia:

Specialised Biotechnology Services

Biotech startups with limited goals or capitalisation can easily find a wide range of biotech-oriented businesses in Singapore, including lab space for rent, contract researchers, equipment rental services, specialised storage facilities expected of a biosafety level 2 facility or higher, and much more. The easy access to such highly specialised services gives startups more flexibility while allowing them to perform more cost-effective research. These benefits have made Singapore a preferred destination for biotech startups that want to employ more agile project management methods.

Strong IP Protection

The theft of intellectual property represents a serious threat to all technology firms, particularly smaller organisations with a limited product and patent portfolio. Singapore’s economic managers have recognised this and have instituted one of the world’s best IP protection regimes, allowing biotech and other critical technology sectors to benefit from their own innovations. These laws have already encouraged biotechnology firms from all over the world to move much of their R&D efforts into Singapore.

Synergy With Local Industries

Biotechnology research is dependent on an incredibly wide variety of expensive, highly specialised inputs. Fortunately, Singapore already produces many of these critical requirements, simplifying the research supply chains needed by biotechnology firms. Such critical biotech inputs like precision instruments and speciality chemicals are already made domestically, helping bring some key costs down for locally based companies. In addition, Singapore’s highly developed finance sector and its abundance of venture capital help remove some of the friction biotechs experience when accessing funding, allowing startups to shift more of their focus to research and development.

Highly Developed Human Capital

The global biotech industry today is highly international, and Singapore’s is no different. However, thanks to decades of domestic policies that emphasise human capital development, Singapore has a high density of highly qualified domestic talents that fit well into the biotech sector. This means that biotech startups in Singapore have no problems finding the right people to fill highly technical positions.

Strong Global Trade Linkages

If there’s something that Singaporean-based biotech cannot source domestically, they can easily have it flown or shipped in, thanks to the country’s highly developed international connections and infrastructure. The country’s strategic position between the Indian and Pacific oceans also gives it easy access to the majority of the world’s population and allows it to benefit more from the competitive advantages of other nearby economies. 

State Support for Biotechnology

Biomedical research is considered by the Singaporean government to be a strategic industry, which means the country is heavily invested in its success. As a result, biotechnology companies have additional access to public funding and other kinds of assistance that are not readily available to businesses in many other industries. Combined with the country’s other serious advantages, these unique incentives give biotech companies very good reasons to bet on Singapore.

Stability

Singapore is one of the most economically and politically stable countries in the world. It has no foreign debt, extremely low corruption rates, almost zero street crime, and a government with a reputation for being accountable and transparent. It also has conservative fiscal and monetary policies as well as an efficient judicial system. In addition, it is mostly shielded from natural disasters and is not under imminent threat from any foreign power. Together, these factors create the right conditions for an exceedingly stable, low-risk economy—something that is extremely beneficial for biotech organisations given their extremely long research and development pipelines.

Singapore’s high density of talent, unique services, public funding for key industries, political stability, industrial synergy, and logistics advantages give biotech startups firm foundations to not only survive, but thrive in an increasingly competitive industry. In just a few decades, these advantages have helped Singapore earn its place as the preeminent Asian biotech hub and a potential to match its rival hubs in Silicon Valley, the US East Coast, and London.

With Asian economies now growing in prosperity, Singapore is well-placed to attract forward-thinking biotech startups that understand the importance of Asia. Biotech startups with limited capitalisation but big dreams may find Singapore the ideal place to make their long-term global growth objectives a reality.

Continue Reading7 Strengths That Make Singapore Asia’s Most Exciting Biotech Hub

Q&A with Manulife US REIT

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One year ago, I covered Manulife US REIT’s declining property valuation. However, MUST’s portfolio valuation has continued to decline. The recent earnings results have documented a -10.9% portfolio valuation decline y-o-y as of 31st December 2022, increasing its gearing ratio to ~49%. This is close to the gearing ratio limit of 50% for REITs. I have therefore asked the following questions, on how MUST can reduce its gearing ratio as well as stem the constant portfolio valuation declines.

MUST’s NAV trend since Q3 2016.

MUST’s Gearing Ratio trend since Q3 2016.

  • What is the probable gearing ratio at the end of the year if: (1) a more reasonable cap rate used; and (2) if MUST is able to find new tenants to replace old ones who have decided to exit?
  • The current valuation may be too conservative and planned for the worst-case scenario. Will MUST revalue its properties again in mid-year if there are significant changes in the assumption?

“We will be working to reduce our gearing through various options such as asset dispositions, distribution reinvestment plan, capital injection, discussions with capital partners and so on. We aim to bring our gearing below 45%. The strategic review is also ongoing, with healthy interest from a broad range of counterparties, including local and international developers, REITs and private equity. We expect to provide further updates on the strategic review in 2Q 2023. Meanwhile, the weighted average cap rate of MUST’s portfolio has increased slightly from 6.0% as at Dec 2021 to 6.3% as at Dec 2022. With more clarity on rate hikes and banks easing their lending, we should see some impact on cap rates. It is still early days. As for TCW, the tenant vacating from Figueroa by the end of the year, we have a couple of prospects who have toured the space a few times and we continue to engage them. For valuations, we will continue with yearly valuations in line with MAS regulations and our SREIT peers.” – a MUST spokesperson

MUST’s ESG ratings and transparency is commendable

Despite the poor performance in terms of portfolio valuation and gearing ratio, MUST’s strengths are in the areas of ESG. In the GRESB Real Estate Assessment, it has attained 5 stars, as well as the highest “Negligible” risk rating by Sustainalytics.

Kenny Loh is an Associate 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.

Continue ReadingQ&A with Manulife US REIT