Money and Me: Finding attractive S-REITs in a rate cutting environment

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14 October 2024

Money and Me: Finding attractive S-REITs in a rate cutting environment

The US Federal Reserve’s first rate cut in 4 years is undoubtedly fueling the REIT sector with optimism, with many companies experiencing a huge jump in their share prices lately. And with expectations of further rate cuts from this year and beyond, how should investors be positioning themselves in the REIT sector? How might distribution yields perform in the coming months? And how can you ride this potentially bullish trend before it’s too late? Dan Koh dissects the details with Kenny Loh, REIT Specialist and Independent Financial Advisor as they discuss the valuation of S-REITs today and where you can find attractive opportunities.

 

   

Note: The above analysis are my own personal views and are NOT buy or sell recommendations. 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.

 

Listen to his previous market outlook interviews here:

2024

2023

2022

2021

2020

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 ReadingMoney and Me: Finding attractive S-REITs in a rate cutting environment

Singapore REITs Monthly Update (October 12th, 2024)

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Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) increased from 702.98 to 700.03 (-0.32%) compared to last month’s update. Singapore REITs is currently having a pull back within an uptrend channel after a strong rally over the 2-3 months.  

 

  • Short-term direction: Up
  • Medium-term direction: Up
  • Long-term direction: Up
  • Immediate Support: 50D SMA (690) and 200D SMA (668)
  • Immediate Resistance 730

 

FTSE REIT Index Chart (2 years)

 

Previous chart on FTSE ST REIT index can be found in the last post: Singapore REIT Fundamental Comparison Table on September 8th, 2024.

 

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.
  • All REITs have the latest Q2 2024 values.
  • 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 October 11th, 2024.
  • 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 are referenced to SG Gov Bond Yield.

As of May 2024, all REITs’ Yield Spread will be referenced to SG Gov Bond Yields, regardless of trading currency.

Price/NAV Ratios Overview

  • Price/NAV increased to 0.91 (Weighted Average: 0.91)
    • Increased from 0.89 in September 2024.
    • Singapore Overall REIT sector is slightly undervalued
  • Most overvalued REITs (based on Price/NAV)
    Keppel DC REIT 1.64
    ParkwayLife REIT 1.52
    Capitaland Ascendas REIT 1.27
    Mapletree Industrial Tr 1.21
    Mapletree Logistics Tr 1.04
    Frasers Centrepoint Trust 1.00

    EC World REIT is currently suspended, however at current Price and NAV/Unit values it has a value of 4.67 (N.M)

  • Most undervalued REITs (based on Price/NAV)
    Prime US REIT 0.33
    Keppel Pacific Oak US REIT 0.35
    Manulife US REIT 0.35
    ARA Hospitality Trust 0.36
    Lippo Malls Indonesia Retail Trust 0.40
    OUE REIT 0.43

Distribution Yields Overview

  • TTM Distribution Yield decreased to 6.23%. (Weighted Average remained at 5.91%)    
    • Decreased from 6.37% in September 2024. (Weighted Average was 5.91%)
    • 14 of 40 Singapore REITs have ttm distribution yields of above 7%.
  • Highest Distribution Yield REITs (ttm)
    IREIT Global 11.01
    ARA Hospitality Trust 10.70
    Elite Commercial REIT 9.41
    Cromwell European REIT 9.40
    EC World REIT 9.24
    First REIT 9.04

    Reminder that these yield numbers are based on current prices. 

    • 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 3.40%. (Weighted Average remained similar at 4.01%)     
    • Tightened from 3.76% in September 2024. (Weighted Average was 3.99%)
    • From May 2024 onwards, all my yield spread measurements are now in relation to SG Gov Bond Yields, no longer a mix with US Gov Bond Yields.

 

Gearing Ratios Overview

  • Gearing Ratio remained at 39.12%. (Weighted Average: 38.28%)
    • Remained at 39.12% in September 2024. (Weighted Average: 38.28%)  
    • Gearing Ratios are updated quarterly. Therefore there were no gearing ratio updates this month.
    • S-REITs Gearing Ratio has been on a steady uptrend. It was 35.55% in Q4 2019.
  • Highest Gearing Ratio REITs
    EC World REIT 57.9
    Manulife US REIT 56.3
    Prime US REIT 48.1
    Lippo Malls Indonesia Retail Trust 45.0
    ARA Hospitality Trust 43.5
    Keppel Pacific Oak US REIT 42.7

    MUST and EC World REIT’s gearing ratio has exceeded MAS’s gearing limit of 50%. However the aggregate leverage limit is not considered to be breached if exceeding the limit is due to circumstances beyond the control of the REIT Manager.

Market Capitalisation Overview

  • Total Singapore REIT Market Capitalisation decreased by 0.11% to S$92.46 Billion.
    • Decreased from S$92.57 Billion in September 2024.
  • Biggest Market Capitalisation REITs (S$m):
    Capitaland Integrated Commercial Trust 14006.72
    Capitaland Ascendas REIT 12267.63
    Mapletree Pan Asia Commercial Trust 7570.08
    Mapletree Logistics Tr 7122.58
    Mapletree Industrial Tr 5981.85
    Frasers Logistics & Commercial Trust 4226.20
  • Smallest Market Capitalisation REITs (S$m):
    ARA Hospitality Trust 145.00
    Lippo Malls Indonesia Retail Trust 169.33
    Elite Commercial REIT 170.23
    Manulife US REIT 220.20
    EC World REIT 226.76
    Prime US REIT 234.13

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, scroll down for more information on the REITs courses.

 

Top 20 Best/Worst Performers of September 2024

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

 

 

SG 10 Year Government Bond Yield

  • SG 10 Year: 2.82% (decreased from 2.88%)

 

Summary

Singapore REITs is currently having a pull back within an uptrend channel after a strong rally over the 2-3 months.  

Fundamentally, the S-REIT sector is trading at an 9% discount to its fair value, with an average trailing twelve-month (TTM) yield of 6.23%. Despite the recent rally, valuations and distribution per unit (DPU) yields remain attractive. For investors who miss to enter the REITs at the market bottom in April and June, the recent pull back presents another opportunities to lock in the current yield at a discounted valuation, while awaiting a potential valuation re-rating in response to the anticipated interest rate cut by the end of 2024.

The expected cut in the U.S. interest rate and the decline in the U.S. 10-year bond yield are key catalysts that could further boost the Singapore REIT sector. According to the current Fed Fund Rate projections from the CME Group, the market expect another 50 basis point cut by end 2024, with a total reduction of about 100 basis points  cut from the peak of the interest rate cycle.

 

 

US 10 Year Risk Free Rate

 

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

Continue ReadingSingapore REITs Monthly Update (October 12th, 2024)

Singapore REITs Monthly Update (September 8th, 2024)

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Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) increased from 654.43 to 702.98 (7.15%) compared to last month’s update. This is the highest percentage gain in the index in a while. The REIT Index has started an uptrend and enter bullish territory.

  • Short-term direction: Up
  • Medium-term direction: Up
  • Long-term direction: Sideways
  • Immediate Support: 20D, 50D SMA and 200D SMA (665-675 zone)
  • Immediate Resistance 732-740 Zone.

FTSE REIT Index Chart (2 years)

Previous chart on FTSE ST REIT index can be found in the last post: Singapore REIT Fundamental Comparison Table on August 12th, 2024.

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.
  • All REITs have the latest Q2 2024 values.
  • 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 September 6th, 2024.
  • 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 are referenced to SG Gov Bond Yield.

As of May 2024, all REITs’ Yield Spread will be referenced to SG Gov Bond Yields, regardless of trading currency.

Price/NAV Ratios Overview

  • Price/NAV increased to 0.89 (Weighted Average: 0.89)
    • Increased from 0.85 in August 2024.
    • Singapore Overall REIT sector is slightly undervalued
  • Most overvalued REITs (based on Price/NAV)
    Keppel DC REIT 1.60
    ParkwayLife REIT 1.52
    Capitaland Ascendas REIT 1.33
    Mapletree Industrial Tr 1.21
    Frasers Centrepoint Trust 1.05
    Mapletree Logistics Tr 1.02
    • EC World REIT is currently suspended, however at current Price and NAV/Unit values it has a value of 4.67 (N.M)
  • Most undervalued REITs (based on Price/NAV)
    Manulife US REIT 0.29
    Prime US REIT 0.33
    ARA Hospitality Trust 0.34
    Keppel Pacific Oak US REIT 0.35
    Lippo Malls Indonesia Retail Trust 0.36
    OUE REIT 0.43

Distribution Yields Overview

  • TTM Distribution Yield decreased to 6.37%. (Weighted Average decreased to 5.91%)    
    • Decreased from 7.14% in August 2024. (Weighted Average was 6.36%)
    • 15 of 40 Singapore REITs have ttm distribution yields of above 7%.
  • Highest Distribution Yield REITs (ttm)
    IREIT Global 11.79
    ARA Hospitality Trust 11.39
    Elite Commercial REIT 9.93
    Cromwell European REIT 9.77
    United Hampshire REIT 9.33
    EC World REIT 9.24

    Reminder that these yield numbers are based on current prices. 

    • 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 3.76%. (Weighted Average remained similar at 3.99%)     
    • Tightened from 4.25% in August 2024. (Weighted Average was 4.01%)
    • From May 2024 onwards, all my yield spread measurements are now in relation to SG Gov Bond Yields, no longer a mix with US Gov Bond Yields.

 

Gearing Ratios Overview

  • Gearing Ratio remained similar at 39.12%. (Weighted Average: 38.28%)
    • Remained similar from 39.14% in August 2024. (Weighted Average: 38.28%)  
    • Gearing Ratios are updated quarterly. Therefore there were only 2 gearing ratio updates this month.
    • S-REITs Gearing Ratio has been on a steady uptrend. It was 35.55% in Q4 2019.
  • Highest Gearing Ratio REITs
    EC World REIT 57.9
    Manulife US REIT 56.3
    Prime US REIT 48.1
    Lippo Malls Indonesia Retail Trust 45.0
    ARA Hospitality Trust 43.5
    Keppel Pacific Oak US REIT 42.7

    MUST and EC World REIT’s gearing ratio has exceeded MAS’s gearing limit of 50%. However the aggregate leverage limit is not considered to be breached if exceeding the limit is due to circumstances beyond the control of the REIT Manager.

Market Capitalisation Overview

  • Total Singapore REIT Market Capitalisation increased by 7.12% to S$92.57 Billion.
    • Increased from S$86.20 Billion in August 2024.
  • Biggest Market Capitalisation REITs (S$m):
    Capitaland Integrated Commercial Trust 14410.76
    Capitaland Ascendas REIT 12795.27
    Mapletree Pan Asia Commercial Trust 7412.37
    Mapletree Logistics Tr 7022.26
    Mapletree Industrial Tr 5981.85
    Frasers Logistics & Commercial Trust 4226.20
  • Smallest Market Capitalisation REITs (S$m):
    ARA Hospitality Trust 136.30
    Lippo Malls Indonesia Retail Trust 153.94
    Elite Commercial REIT 161.43
    Manulife US REIT 183.50
    BHG Retail REIT 226.03
    EC World REIT 226.76

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, scroll down for more information on the REITs courses.

Top 20 Best/Worst Performers of August 2024

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

SG 10 Year Government Bond Yield

  • SG 10 Year: 2.59% (decreased from 2.88%)

 

Summary

Singapore REITs have experienced a strong rally over the past month in anticipation of an interest rate cut in September. The FTSE ST REIT index has recently begun an uptrend, signaling the start of a bull market for Singapore REITs.

The expected cut in the U.S. interest rate and the decline in the U.S. 10-year bond yield are key catalysts that could further boost the Singapore REIT sector. According to the current Fed Fund Rate projections from the CME Group, a minimum 25 basis point cut is expected by Q3, with a total reduction of at least 100 basis points by the end of 2024.

The S-REIT sector is currently trading at an 11% discount to its fair value, with an average trailing twelve-month (TTM) yield of 6.37%. Despite the recent rally, valuations and distribution per unit (DPU) yields remain attractive. Investors may consider locking in the current yield at a discounted valuation, while awaiting a potential valuation re-rating in response to the anticipated interest rate cut by the end of 2024.

US 10 Year Risk Free Rate

 

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

Continue ReadingSingapore REITs Monthly Update (September 8th, 2024)