Technical Analysis of FTSE ST REIT Index (FSTAS351020)

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FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) decreased from 853.35 to 816.11 (-4.37%) compared to the last month update. The Singapore REIT index broke the support level of 816 to a low of 799 but has since rebounded to 816. 

• Short-term direction: Down 
• Medium-term direction: Down
• Immediate Support at 800, followed by 775.
• Immediate Resistance at 816.

Due to the recent correction, Immediate Support is now 800 (partially a psychological support since 800 is a round number) and Immediate Resistance is now 816. In order to return to the range the Index was trading in for the past 18 months (between 816 and 890, the 2 thick red lines), the Index has to break above the Immediate Resistance of 816. This has happened back in November of 2020 (highlighted green). Failing to do so, the following support is at 775.

Previous chart on FTSE ST REIT index can be found in the last post: Singapore REIT Fundamental Comparison Table on January 2, 2021.

Fundamental Analysis of 40 Singapore REITs

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The following is the compilation of 40 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 there 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.
• REITs updated with the latest Q4 2021 business updates/earnings are highlighted in purple.
• REITs updated with last quarter’s Q3 2021 business updates/earnings are highlighted in green.
• 2 REITs submitted their IPOs in November 2021. They are highlighted in yellow and have their values extracted from IPO Prospectuses. Yield is calculated based on *Estimated DPU (calculated from the Prospectus) / Current Price.

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

 

Price/NAV Ratios Overview

• Price/NAV decreased to 0.98.
  • Decreased from 1.03 in January 2021.
  • Singapore Overall REIT sector is slightly undervalued now.
  • Take note that NAV is adjusted downward for most REITs due to drop in rental income during the pandemic (Property valuation is done using DCF model or comparative model)

• Most overvalued REITs (based on Price/NAV)
  • Parkway Life REIT (Price/NAV = 2.01)
  • Keppel DC REIT (Price/NAV = 1.62)
  • Mapletree Industrial Trust (Price/NAV = 1.40)
  • Digital Core REIT (Price/NAV = 1.37)
  • Mapletree Logistics Trust (Price/NAV = 1.26)
  • ARA LOGOS Logistics Trust (Price/NAV = 1.25)

• Most undervalued REITs (based on Price/NAV)
  • Lippo Malls Indonesia Retail Trust (Price/NAV = 0.55)
  • BHG Retail REIT (Price/NAV = 0.63)
  • Frasers Hospitality Trust (Price/NAV = 0.71)
  • Far East Hospitality Trust (Price/NAV = 0.71)
  • OUE Commercial REIT (Price/NAV = 0.72)
  • Suntec REIT (Price/NAV = 0.74)

Distribution Yields Overview

• TTM Distribution Yield increased to 5.97%.
  • Increased from 5.84% in January 2021.
  • 11 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. 
  • Main reason for yield increases has been due to the general overall drop of REIT prices, therefore increasing yield on costs.

• Highest Distribution Yield REITs (ttm)
  • United Hampshire REIT (9.97%)
  • First REIT (9.00%)
  • Sasseur REIT (8.71%)
  • Keppel Pacific Oak US REIT (8.63%)
  • EC World REIT (8.43%)
  • Prime US REIT (8.33%)
  • 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 you should look for when choosing a REIT to invest in.

Gearing Ratios Overview

• Gearing Ratio increased to 37.48%. 
  • Increased from 37.22% in January 2021.
  • Gearing Ratios are updated quarterly. Thus only some REITs have updated gearing ratios (highlighted in purple)
  • 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.

• Highest Gearing Ratio REITs
  • ARA Hospitality Trust (48.4%)
  • Daiwa House Logistics Trust (43.8%)
  • Suntec REIT (43.7%)
  • Frasers Hospitality Trust (42.5%)
  • Lippo Malls Retail Trust (42.3%)
  • Elite Commercial REIT (42.1%)

Market Capitalisation Overview

• Total Singapore REIT Market Capitalisation decreased by 3.58% to S$105.0 Billion.
  • Decreased from S$108.9 Billion in January 2021.
  • Contributed by IPO listing of Daiwa House Logistic Trust and Digital Core REIT.

• Biggest Market Capitalisation REITs:
  • Capitaland Integrated Commercial Trust ($13.41B)
  • Ascendas REIT ($11.70B)
  • Mapletree Logistics Trust ($8.04B)
  • Mapletree Industrial Trust ($6.70B)
  • Mapletree Commercial Trust ($6.04B)
  • No change in Top 5 rankings since August 2021.

• Smallest Market Capitalisation REITs:
  • BHG Retail REIT ($289M)
  • ARA Hospitality Trust ($374M)
  • United Hampshire REIT ($409M)
  • Lippo Malls Indonesia Retail Trust ($414M)
  • Sabana REIT ($465M)
  • No change in Top 5 rankings since December 2021.

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 January 2021

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

 

SG 10 Year & US 10 Year Government Bond Yield

• SG 10 Year: 1.78% (increased from 1.66%)
• US 10 Year: 1.92% (increased from 1.51%)

 

Major REIT News in January 2021

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S-REITs Earnings Season for the Period Ending 31 Dec 2021 is well underway

A total of 22 S-REITs (21 reflected in the above table) have released their earnings/business updates for the Period Ending 31 Dec 2021 (30 Nov 2021 for SPH Reit) with the remainder set to do so through end-February.

 

Full Steam ahead for S-REITs earnings season

THE BUSINESS TIMES, Jan 23 2022: SPH Reit SPHREIT: SK6U -0.52% kicked off the current financial reporting season for S-Reits on Jan 7, 2022 with the release of its first quarter (ended Nov 30, 2021) business update. This was followed by Sabana Industrial Reit, Sabana Reit: M1GU -1.14%  which reported its second half and full year (ended Dec 31, 2021) financial results on Jan 20.

Another 25 S-Reits have also confirmed that they will unveil results or business updates between Jan 24 and Feb 23 for their respective period ended Dec 31, 2021. Among them, 16 S-Reits would be reporting full-year financial results, 4 would be reporting first-half or third-quarter financial results, and another 5 would be providing quarterly business updates. Read More

REITs that have yet to report earnings as of February 5th, 2022:

ARA HTrust USD (XZL), Ascendas Reit (A17U), BHG Retail Reit (BMGU), CromwellReit EUR (CWBU), EC World Reit (BWCU), Elite Commercial REIT GBP (MXNU), Daiwa House Log Trust (DHLU), DigiCore Reit USD (DCRU), Far East HTrust (Q5T), First Reit (AW9U), Frasers Log & Com Tr (BUOU). IREIT Global (UD1U), Lippo Malls Tr (D5IU), ManulifeReit USD (BTOU), OUE Com Reit (TS0U), Prime US Reit USD (OXMU), Sasseur Reit (CRPU), UtdHampshReitUSD (ODBU)

S-REIT Table at a glance.

 

Price tag for ALOG-ESR Merger raised by 2%, EGM and scheme meeting deferred

THE BUSINESS TIMES, Jan 22 2022: The scheme consideration for the proposed merger of Ara Logos Logistics Trust ARA LOGOS Log Tr: K2LU -2.34% and ESR-Reit ESR-REIT: J91U 0% has been raised to S$0.097 in cash and 1.7729 in ESR-Reit units for every ALog unit, from S$0.095 in cash and 1.6765 in ESR-Reit units previously.

The higher offer works out to a 2.1 and 5.7 per cent rise respectively for the cash and unit portions. The new price tag for the proposed merger is S$0.97 per ALog unit, based on an issue price of S$0.4924 per ESR-Reit unit. The previous consideration was S$0.95 per ALog unit, but based on a higher issue price of S$0.51 per ESR-Reit unit. Read More

Have questions about the ALOG-ESR Merger? Do view my Q&As with both the ESR REIT and ALOG Management Team, as we answer your questions about the merger. Read my Interview with ESR REIT here, and with ALOG REIT here.

 

Summary

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Fundamentally, the whole Singapore REITs landscape is undervalued due to the recent correction based on the average Price/NAV value of the S-REITs. Below is the market cap heat map for the past 1 month. Almost all S-REITs in the past month have decreased in market cap. Only 3 S-REITs, Capitaland Integrated Comemrcial Trust (+0.98%), Daiwa House Logistics Trust (+1.24%) and Suntec REIT (+1.30%) have increased in market cap.

 

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

Yield spread (in reference to the 10 year Singapore government bond of 1.78% as of 5th February 2021) remained almost the same, changing from 4.19% to 4.18%. As the interest rate hike approaches, and government bond yields increases, this would, in theory, tighten the yield spread (as the DPU  from S-REITs are lagged). Some fund managers may be doing portfolio rebalancing to keep the yield spread criteria intact, which may have caused the recent price corrections across the S-REIT market, increasing S-REIT yields (ttm yields remaining stable with a drop in price leads to increased ttm% yield). Therefore, Yield Spreads remained largely the same due to both government bonds and S-REIT average yields increasing.

The risk premium remains attractive (compared to other asset classes) to accumulate Singapore REITs in stages to lock in the current price and to benefit from long-term yield after the recovery, especially since the S-REIT Market is undervalued. Moving forward, it is expected that DPU will continue to increase due to the recovery of the global economy, as seen in the previous few earning updates. NAV is expected to be adjusted upward due to revaluation of the portfolio.

Technically the FTSE ST REIT index has broken the critical 816 support and currently rebounded to test the 816 level. If the REIT index is able to go above this level, the bearish breakout will be negated as this is considered a false breakdown. Otherwise, the REIT index will continue the downtrend towards 800 and 775.

You can listen to my monthly REIT radio interview on MoneyFM89.3 here.

 

Resources

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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 Financial Advisory Manager 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