Correlation Analysis of Price/NAV of S-REITs to other factors

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REITs have many unique values, from Financial Ratios to Debt values to Market Performance (such as Occupancy Rates etc). In this article, we will be using some statistical measurements to understand the correlation of several factors that a REIT would have, and the Price/Net Asset Value (NAV) of the S-REIT market.

Each of the following graphs shows the individual plot of each REIT, to create a graph that visualises the S-REIT market. Data used is collected and compiled from the StocksCafe REIT screener.

Note: The following analysis is based on observations. Correlation Causation, hence it is not a predictor of future stock movements. Read the Disclaimer for more details. You can also find out more about what the R-squared value means here.

Objective:

To understand the correlation of the other REIT factors to the Price/NAV value.
There are several values that show a correlation between the Price/NAV value of the REIT. Below are some examples:

Price/NAV vs Interest Coverage Ratio

Interest Coverage Ratio (ICR) is one of the financial ratios that displays a correlation with the Price/NAV value.

Graph of Price/NAV vs Interest Coverage Ratio, 28 Aug 2020

With a R-squared value of 0.5251, this displays a relatively strong correlation between the 2 values. Using the y=mx+c equation, the positive m value of 0.1114 means a positive correlation, that a higher Interest Coverage Ratio is correlated to a higher Price/NAV ratio.

This could possibly be explained that since a higher Interest Coverage Ratio means a healthier financial position.

Price/NAV vs Market Cap

Market cap is another one of the financial ratios that displays a correlation with the Price/NAV value.

Graph of Price/NAV vs Market Cap, 28 Aug 2020

With a R-squared value of 0.3488, this displays a reasonable correlation between the 2 values, albeit not as strong as Price/NAV vs Interest Coverage Ratio. Using the y=mx+c equation, the positive m value means a positive correlation, that a higher Market Cap is correlated to a higher Price/NAV ratio.

This could possibly be explained that since higher Market Capitalisation consistent increase in share value and dividend payments

Price/NAV vs Weighted Average Lease Expiry (WALE)

However not all factors are not correlated to the Price/NAV value of the REIT. For example, rental-related values such as WALE and Occupancy Rates do not show a correlation to the Price/NAV value. The following is the graph for Price/NAV to WALE:

Graph of Price/NAV vs Weighted Average Lease Expiry (WALE), 28 Aug 2020

With a very low R-squared value of 0.0651, it does not show a correlation between the 2 values, with values all over the place. Thus, it can be said that there does not seem to be any correlation between WALE and the Price/NAV value.

Price/NAV vs Occupancy Rate

The same can be said with Occupancy Rate, as seen with the graph below:

Graph of Price/NAV vs Occupancy (%), 28 Aug 2020

With a very low R-squared value of 0.06636, it does not show a correlation between the 2 values, with values all over the place. Thus, it can be said that there does not seem to be any correlation between the Occupancy Rate and the Price/NAV value.

The following table shows the Top 10 Singapore REITs with highest Interest Coverage Ratio. For data, please refer to Stocks Cafe REITs Screener.

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

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Are you SABOing your Investment for Retirement?

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It is a very unfortunate event that investors lost their hard earned money and retirement fund with Six Capital.

Angry investors file police reports against fintech firm SixCapital

What can we as the retail investors learn from this incident?

Let’s use the SABO model to analyse this incident. By the way, this SABO is NOT the Singlish of “Sabotage”.

SABO stands for S (Suitability), A (Affordability), B(Benefit) and O(Objective).

 

Objective

Before we invest, we need to have a very clear objective in mind on why we need to invest, how long is our investment horizon, what is our risk profile, how much time we can allocate to monitor our investment portfolio, etc.. Setting the right objective is very important because it serves as our lighthouse to identify, select and understand the right asset classes to meet our objective.

 

Suitability

Once we are clear with the objective, the next step is to select the asset classes which are suitable to our risk appetite, our life style, available time to do our homework and investment horizon.

Examples of the wrong match of one life style, personality, risk appetite with wrong asset classes and investment strategy:

  • a busy executive scalps forex every night after work;
  • a retiree invests his / her majority of retirement fund in land banking;
  • a person who dislikes numbers trades Option
  • a housewife who does not have computer knowledge trades crytocurrency

It is not sustainable with all the above examples due to the mismatch.

If you are struggling with your current investment, it is strongly suggested you do a review immediately on your current investment portfolio or your trading strategy, before you commit more time and more money doing something which is not suitable to you.

The following questions the investors have to ask to see whether the investment is suitable to them :

  • How the investment strategy can give 18% per year?
  • What are the risks in this investment?
  • What is the worst case scenario?
  • How volatile is this investment?
  • How quickly if the investors want to redeem their investment? Is there a lock in period? Are there any early redemption and other charges?

 

 

Affordability

  • Can we afford to lose all our investment if we make mistake investing in the wrong asset classes or instrument?
  • Can we afford to ride through the market volatility if there is a big correction or black swan event?
  • Can we afford to take more risk for higher return?
  • Can we afford to be ignorant, DIY and listen to tips when come to investing?
  • Can we afford to get professional advice to help building the safe and diversified portfolio?

 

Benefits

  • Is the return of the  investment meet my expectation?
  • Is my expectation realistic?
  • Is it worth to take more risk for additional return?
  • Is my investment liquid and sell anytime when I need money?
  • Can the investment give me Peace of Mind and give me a “Sleep Well” factor?

 

I am rather concern with this statement “A few retirees indicated that they had poured in significant retirement sums. One lady was the age of my mother. She said that she was going to the temple to pray.”

My recommendation to retiree on their retirement fund:

  • First priority is Capital Preservation, Not Chasing for Return because you can’t afford to lose your retirement fund unless you can replenish your capital easily if you lose all of them.
  • Look for investments which are less volatile and pay consistent dividend like Bond or REITs.
  • Nothing is guaranteed in this investment world. Please don’t believe in those marketing materials indicate “Guaranteed Return”, etc. Countries, Banks, Insurance companies can all go bankrupt.. so, where does the guarantee come from?
  • Do have a diversified investment portfolio and Manage the Risk… Don’t put all your eggs into one basket. You cannot afford to make any costly mistake at retirement age. One big mistake may wipe out all your retirement fund.

 

If you need an Independent Third Party to have an unbiased view on  your current investment portfolio (Fee based), you can contact me through email kennyloh@fapl.sg.

 

Scope of the Investment Portfolio Review

  • Identify your Investment Objective
  • Risk Profile Assessment
  • Strength and Weakness of current portfolio
  • Recommendation

 

Continue Reading Are you SABOing your Investment for Retirement?

Money and Me: The REIT outlook within and beyond Singapore

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18 August 2020 

Money and Me: The REIT outlook within and beyond Singapore
Michelle Martin speaks to Kenny Loh, REIT Specialist and Independent Financial Advisor to discuss the S-REIT space, Sasseur REIT, gold mining stocks, and sweet spots on the local and regional  S-REIT index.

  • S-REITs performance compared to other asset classes
  • Outlooks of some overseas REITs
  • Mapletree Industrial Trust’s move towards datacentres

 

 

Listen to his previous market outlook interviews here:

 

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. 
You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement
Continue Reading Money and Me: The REIT outlook within and beyond Singapore