Small-and-Medium Market Cap S-REITs top gainers of 1H 2021

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Halfway through the year, how has the S-REIT market performed in 1H 2021? Below is the table of the Top 10 gainers in S-REITs, sorted by order of ranking. This table is taken from the StocksCafe REIT screener.

Top 10 YTD performers. Data taken from the StocksCafe REIT screener.

Below are the charts of each of the Top 10 performers in the S-REIT market. The 10 S-REITs in this list gained an average of 23.09% YTD.

Charts of the Top 10 YTD S-REIT performers. Data taken from ShareInvestor.

Observations

  • Small and Medium Market Cap REITs outperformed Big Market Cap REITs.

With the exception of ParkwayLife REIT, 9 of the top 10 performing REITs have market capitalisations of $2.2B and below. The 10 S-REITs in this list gained an average of 23.09% YTD, while the 5 largest market cap REITs gained an average of only 1.67%See below for more charts.

  • Sector breakdown

Of the 10 REITs, 3 are Industrial REITS (AIMS APAC REIT, ARA LOGOS Log Trust and Sabana REIT), 1 is a hospitality REIT (ARA Hospitality Trust), 1 is a healthcare REIT (ParkwayLife REIT), 2 are Office/Retail REITs (Starhill Global REIT and Lendlease REIT), 1 is a retail REIT (Sasseur REIT), 1 is an office REIT (Keppel Pacific Oak REIT), and 1 is a diversified REIT (OUE Commercial REIT).

Below are the charts of each of the 5 largest market cap S-REITs, followed by a ‘heatmap’ chart Year-To-Date.

Charts of the 5 Largest Market Capitalisation S-REITs. Data taken from ShareInvestor.
 
A performance heatmap of the 39 S-REITs Year-To-Date. Data taken from the StocksCafe REIT screener

An interesting observation is that the 4 top performing S-REITs of 1H 2020 are only average performers for 1H 2021. Furthermore, generally poor-performing S-REITs in 1H 2020 performed well in 1H 2021.

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, 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

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Singapore REIT Monthly Update (July 04 – 2021)

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Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) increased slightly from 849.11 to 868.08 (2.23%) compared to the last month update. Currently the Singapore REIT index is still trading with a range between 816 and 880.

  • As for now, Short term direction: Sideway.
  • Immediate Support at 816, followed by 775.
  • Immediate Resistance at 880.

Previous chart on FTSE ST REIT index can be found in the last post: Singapore REIT Fundamental Comparison Table on June 6, 2021.

Fundamental Analysis of 39 Singapore REITs

The following is the compilation of 39 Singapore REITs with colour coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio.

  • Note 1: The Financial Ratio are based on past data and there are lagging indicators.
  • Note 2: 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.
  • Note 3: All REITs have been updated with the latest Q1 2021 business updates.

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

Do sign up for the REIT screener at only ~$8.33 per month! (limited time only). Normal price $120 per year.

  • Price/NAV increased to 1.06
    • Was 1.03 in June 2021.
    • Singapore Overall REIT sector is slightly overvalued now.
    • Take note that NAV is adjusted downward for most REITs due to drop in rental income (Property valuation is done using DCF model or comparative model)
  • TTM Distribution Yield decreased to 5.16%
    • Decreased from 5.32% in June 2021.
    • 8 of 38 (21%) 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 post circuit breaker recovery.
    • Excluded Eagle Hospitality Trust due to suspension.
  • Gearing Ratio remained at 37.68%. 
    • Remained at 37.68% in June 2021.
    • Gearing Ratios are updated quarterly. No business updates have been made since the last monthly update.
    • In general, Singapore REITs sector gearing ratio is healthy but increased due to the reduction of the valuation of portfolios and an increase in borrowing due to Covid-19.
  • Most overvalued REITs (based on Price/NAV)
    • Parkway Life REIT (Price/NAV = 2.35)
    • Keppel DC REIT (Price/NAV = 2.08)
    • Mapletree Industrial Trust (Price/NAV = 1.69)
    • Mapletree Logistics Trust (Price/NAV = 1.57)
    • ARA LOGOS Logistics Trust (Price/NAV = 1.51)
    • No change in top 5 most overvalued REITs ranking since the June 2021 update.
  • Most undervalued REITs (based on Price/NAV)
    • First REIT (Price/NAV = 0.53)
    • Lippo Malls Indonesia Retail Trust (Price/NAV = 0.63)
    • BHG REIT (Price/NAV = 0.66)
    • Starhill Global REIT (Price/NAV = 0.72)
    • Suntec REIT (Price/NAV = 0.72)
    • Far East Hospitality Trust (Price/NAV = 0.73)
  • Highest Distribution Yield REITs (ttm)
    • First REIT (11.09%)
    • Prime US REIT (7.93%)
    • IREIT Global (7.80%)
    • Elite Commercial REIT (7.29%)
    • Sasseur REIT (7.26%)
    • Manulife US REIT (7.09%)
    • 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.
  • Highest Gearing Ratio REITs
    • Eagle Hospitality Trust (65.5%) * Filed for Chapter 11 Bankruptcy Protection *
    • ARA Hospitality Trust (49.0%)
    • Suntec REIT (44.4%)
    • Elite Commercial REIT (42.1%)
    • ESR REIT (42.0%)
    • Lippo Malls Retail Trust (41.7%)
    • No business updates since the June 2021 update, thus no change in top 5 highest gearing ratio REITs ranking
  • Total Singapore REIT Market Capitalisation increased to S$108.4 Billion.
    • Decreased from S$106.1 Billion in June 2021.
  • Biggest Market Capitalisation REITs:
    • Capitaland Integrated Commercial Trust ($14.18B)
    • Ascendas REIT ($12.38B)
    • Mapletree Logistics Trust ($8.48B)
    • Mapletree Commercial Trust ($7.06B)
    • Mapletree Industrial Trust ($6.65B)
    • No change in ranking compared to March-May 2021 update.
  • Smallest Market Capitalisation REITs:
    • BHG Retail REIT ($284M)
    • United Hamsphire REIT ($327M)
    • ARA Hospitality Trust ($390M)
    • First REIT ($392M)
    • Sabana REIT ($442M)
    • All 5 REITs were also the Smallest Market Capitalisation REITs in the March-May 2021 update.
  • Eagle Hospitality Trust is currently suspended

Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. To learn how to use the table and make appropriate investment decisions, sign up for the next REIT Investing Workshop here to learn how to choose fundamentally strong Singapore REITs for long-term investing and passive income generation.

Top 20 Performers of the Month (Source: https://stocks.cafe/kenny/advanced)

SG 10 Year & US 10 Year Government Bond Yield

  • SG 10 Year: 1.539%
  • US 10 Year: 1.446%

Summary

Fundamentally, the whole Singapore REITs landscape is slightly overvalued now based on the average Price/NAV value of the S-REITs. Below is the market cap heat map for the past 1 month. Small and mid cap REITs are the leaders in the performance.

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

Yield spread (in reference to 10 year Singapore government bond of 1.539%) continues to tighten from 3.8% to 3.62%. However, the risk premium is still attractive to accumulate Singapore REITs in stages to lock in the current price and to benefit from long-term yield after the recovery. Moving forward, it is expected that DPU will increase due to the recovery of global economy.

Technically the REIT Index is still trading in a sideways consolidation waiting for a breakout (upside bias). Current macro factors such as a low-interest rate environment, aggressive M&A for future DPU growth, wider roll out of the vaccination and recovery of global economic support the bullish breakout.

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 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, 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

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How does Retirement Planning work? A Case Study

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Ever wondered how comprehensive retirement planning is conducted? In this article, we will be covering a case study, on how retirement planning is conducted by an independent financial advisory firm.


The Client & Her Concerns

Michelle (not her real name) is a 43-year-old Singaporean Working Mother with 1 young child. She is the sole bread winner for the family as her husband is not working due to a medical condition. Michelle is a Regional Finance Director earning an annual income of $200,000 in an American Bank.

Michelle has concerns over her retirement planning as she is worried about her job security and she hardly has any extra savings to set aside for her retirement. She only has about $6,000 savings every year as she has huge financial commitments for her family, children and mortgage payments.

Kenny conducted the following KYC (Know Your Client) and fact-finding to understand her current financial situation before making recommendations for her retirement planning.

  1. Financial Health Check
  2. Wealth Protection

After Michelle provided Kenny her Personal Income Statement and Net Worth Statement, Kenny found her financial ratios to be as follows:

financial ratios

Based on the financial ratios, Kenny provided a few recommendations to Michelle for improvement:

  • Maximise the returns on lazy money which is sitting in the bank receiving 0.05% interest rate.
  • Make the money work harder by investing the idle money to at least beat inflation.
  • Should not incur more debt.
  • Find ways to reduce personal expenses and family expenses to free up more cash flow to build an investment portfolio for retirement.

Kenny did a simple Insurance Portfolio Audit and highlighted the Wealth Protection gaps to Michelle, advising her to get sufficient wealth protection against Death, Total Permanent Disability and Critical Illnesses. Kenny highlighted that any unforeseen expenses will derail her retirement plan.

insurance portfolio audit


Retirement Planning

The following are the detailed planning parameters for Michelle.

Retirement Age: 60-year-old

Life Expectancy: 85-year-old

Monthly Expense = S$4,000

  • Total Retirement Fund Need (60 to 85-year-old, Expense inflation adjusted) = SS$1,656,863
  • Current available resources
    • CPF OA & SA about S$S160,000. Assumption: Michelle has to work until age 60 and be able to accumulate enough (close to S$300,000 Enhanced Retirement Sum) by age 55 to enrol into CPF Life, which can provide about $2,000 monthly income perpetually)
    • Current Shares investment of $93,000
  • Retirement Funding Gap = S$1,053,870
funding retirement


Advice Provided (to Fill the Retirement Funding Gap)

A Retirement Income Solution consisting of Fixed Income (Guaranteed) and Inflation Hedged Income (Non-Guaranteed but with growth potential) is considered:

  1. Fixed Income with CPF Life (Monthly $2,000 payout) – Perpetual
  2. $600,000 Dividend Portfolio (REITs and Income Generating Investment) with 3% p.a. growth to hedge inflation (Monthly $2,500) – Perpetual
  3. Growth Portfolio to fill the funding gap – to be drawn down
funding retirement_2

This retirement portfolio also serves the purpose of the estate planning & wealth distribution because the $600,000 Dividend portfolio can be passed on to the next generation upon death. The distribution method can either be written in a will (for immediate distribution) or be set up in a Testamentary Trust (for delayed distribution).


Options to Save for Retirement

options to save for retirement

There are 3 options for the client to save for retirement:

  • Option A: Lump Sum Investment: $459,800
  • Option B: Regular Annual Saving: $38,842
  • Option C: Lump Sum Investment with Regular Annual Saving: Initial sum of $250,000, together with a regular annual saving of about $23,350

A Holistic Retirement Plan and Recommendation

After analysing Michelle’s personal cashflow statement and net worth statement, current financial resources and family situation, the following recommendations are made to Michelle.

  1. Option A and Option B are out as Michelle does not have enough financial resources.
  2. Option C is a more viable solution as Michelle has S$250,000 cash savings but the annual investment of $23,350 (about $2,000 per month) is a challenge to her. Michelle has to take immediate action to reduce unnecessary expenses to free up more cash to invest for her retirement.
  3. As Michelle has achieved the maximum tax relief ($80,000) of her personal income tax, Michelle does not need to contribute to SRS (Supplementary Retirement Sum) as there is no further tax saving.
  4. Michelle has to set aside about $60,000 cash as emergency fund (6 months of $10,000 monthly expense) before deploying her cash for investment.
  5. Michelle needs to accumulate up to $300,000 in her CPF OA + SA by 55-year-old (in the next 12 years)
  6. As Michelle is the sole breadwinner of her family, she has to bear all the medical expenses if any family member incurs them. Protecting wealth is the first priority. Michelle was advised to conduct a detailed Insurance Portfolio Audit (for herself and her family) with the objective of maximising the protection with limited financial resources. This is to hedge the investment portfolio to avoid any liquidation due to unforeseen events which will derail the retirement planning.
  7. Implement an actively managed REIT portfolio (between 8-12 REITS) with the focus on Passive Income Generation of 4%-6% annual dividend. Singapore REITs have one of the highest dividend yield and lowest volatility compared to other stock markets. Moreover, they have a low correlation to other asset classes.

sreits

sreits_2

correlation matrix between sreits and other asset classes

 8. Implement a Diversified Growth Portfolio (target 7-8% p.a. return with Moderate Aggressive Risk Profile) with a monthly Regular Saving Plan to grow the capital.

diversified growth portfolio

Conducted Back Test (10 Years) to check whether the constructed portfolio is able to deliver 8% p.a. expected return. The back test’s result (10 years’ data) showed that the recommended portfolio delivered an 11.28% annualised return.

Note: Past performance is not an indication of future performance.

10 year cumulative performance chart
  1. If Michelle loses her job or is unable to generate income from working, and based on her current financial and cash flow situations, Michelle has to consider downgrading from her private condominium to HDB in order to free up cash and also reduce or eliminate her monthly mortgage liability.

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, 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 an invited speaker of REITs Symposium and Invest Fair. Kenny Loh also offers REIT Portfolio Advisory for a fee. Do contact him at kennyloh@fapl.sg 

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Continue Reading How does Retirement Planning work? A Case Study