Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) decreased from 747.06 to 735.33 (-1.57%) compared to last month’s update. The REIT index is currently trading within a big symmetrical triangle with the red line resistance and blue line 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: Sideways
• Long-term direction: Down (200D SMA is sloping down)
• Immediate Support at 730 (symmetrical triangle support)
• Immediate Resistance at 749 (200D SMA resistance). 

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 April 8th, 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, other than Cromwell European REIT.
• 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 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 May 12th, 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 0.80. (Weighted Average: 0.80)
  • Decreased from 0.82 in April 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)	1.67
    Keppel DC Reit (AJBU)	1.58
    Mapletree Ind Tr (ME8U)	1.26
    Capitaland Ascendas Reit (A17U)	1.21
    Mapletree Log Tr (M44U)	1.20
    Paragon REIT (SK6U)	1.03

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

• Most undervalued REITs (based on Price/NAV)

  • Lippo Malls Tr (D5IU)	0.21
    ManulifeReit USD (BTOU)	0.26
    Prime US Reit USD (OXMU)	0.28
    EC World Reit (BWCU)	0.39
    KepPacOakReitUSD (CMOU)	0.40
    ARA HTrust USD (XZL)	0.46

Distribution Yields Overview

• TTM Distribution Yield increased to 9.09%. (Weighted Average: 6.22%)    
  • Increased from 8.40% in April 2023.
  • 19 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)

  • ManulifeReit USD (BTOU)	33.45
    Prime US Reit USD (OXMU)	31.19
    KepPacOakReitUSD (CMOU)	18.13
    EC World Reit (BWCU)	15.27
    Elite Commercial REIT GBP (MXNU)	14.42
    UtdHampshReitUSD (ODBU)	13.84

  • Reminder that these yield numbers are based on current prices after a huge plunge. This has caused Manulife US REIT and Prime US REIT’s yields to be over 30%.
  • 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 widened to 6.25%. (Weighted Average: 4.39%) 
  • Widened from 5.56% in April 2023.

Gearing Ratios Overview

• Gearing Ratio increased to 37.95%. (Weighted Average: 38.41%)    
  • Increased from 37.54% from April 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

  • 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 1.72% to S$96.79 Billion.
  • Decreased from S$98.50 Billion in April 2023.

• Biggest Market Capitalisation REITs (S$):

  • Capitaland Int Com Trust (C38U)	13,668.35
    Capitaland Ascendas Reit (A17U)	12,023.41
    Mapletree PAC Tr (N2IU)	8,848.94
    Mapletree Log Tr (M44U)	8,320.41
    Mapletree Ind Tr (ME8U)	6,346.14
    Frasers Log & Com Tr (BUOU)	4,721.62

  • No change in the rankings since September 2022.

• Smallest Market Capitalisation REITs (S$):

  • Lippo Malls Tr (D5IU)	123.15
    EC World Reit (BWCU)	238.90
    BHG Retail Reit (BMGU)	245.81
    Elite Commercial REIT GBP (MXNU)	248.40
    ARA HTrust USD (XZL)	269.04
    UtdHampshReitUSD (ODBU)	321.57

  • No change in the Top 6 constituents in the past 2 months.

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 April 2023

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

SG 10 Year & US 10 Year Government Bond Yield

• SG 10 Year: 2.74% (decreased from 2.78%)
• US 10 Year: 3.46% (increased from 3.28%)

Major REIT News in April 2023

There has been no major REIT news in April 2023. Major REIT news generally include REIT takeovers and mergers, huge acquisitions, and events such as defaults and change of ownerships.

Summary

Fundamentally, the whole Singapore REITs landscape remains undervalued based on the average Price/NAV (at 0.80) value of the S-REITs, with a very attractive DPU yield of 9.09%! (Weighted average yield of 6.22%), 

Small market cap REITs fared poorly in comparison. The worst standout performers have been the 2 US-focused Commercial REITs, namely Manulife US REIT (-18.39%), Prime US REIT (-16%). The previous month has also not been good for these REITs. Hence, these REITs now have an annualised ttm yield of over 30%!

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

Yield spread (in reference to the 10-year Singapore government bond yield of 2.74% as of 12th May 2023) widened significantly from 5.56% to 6.25%. (Weighted Average Yield Spread is currently 4.39%, which is still attractive). This is due to the average S-REIT yield increasing significantly from 8.40% to 9.09%, and a slight decrease in government bond yields. However, this is due to the small market cap REITs artificially inflating these numbers due to its performance, while large market cap REITs remained resilient in comparison. The S-REIT overall market cap remained resilient, despite the drop in average Price/NAV values.

Therefore, in light of these performances, let me repeat: yield should not be the only consideration for choosing a REIT! If you want, you can consult me on how to choose your REITs to invest in. 

Technically, FTSE ST REIT Index is trading within a Symmetrical 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 (probably until US Fed announces that there will not be any rate hike or even rate cuts). The rate hike of 25bps has been confirmed, and the rate is now at 5.25%. However, based on the Fed Dot Plot, the US Fed may start to cut interest rate at the end of 2023 / beginning of 2024 as there is 70% probability the US will enter into a recession in 2023. The drop in 10 years risk free rate has given some indication that interest rates will be coming down in the near future. Cutting interest rates will favor the real estate and REITs sector.

Based on the current overall S-REIT P/NAV of 0.80 and current average DPU yield of 9.09%, the Singapore REITs sector is extremely attractive and possibly has bottomed. 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.

I will be speaking at the coming REITs Symposium on May 20-2023 with the topic of “Insight of Best Performing REITs”
I will be sharing the common characteristics of those REITs that investors should pay attention to. You can register the event at the following link. Promo code: RS23KL for more discount.

See you physically at 2023 REITs Symposium!

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