Post-US elections, the SGX S-REIT Index has corrected 4.5%, underperforming the flat performance of the benchmark Straits Times Index (STI), but in line with that of the MSCI World REIT Index, largely due to rising expectations of an interest rate hike by the Fed next month.
Post-correction, the SGX S-REIT Index now trades at 0.92x its book value, with 17 constituent REITs trading below the Index’s price-to-book valuation.
The six REITs trading at the steepest discounts to their book values are: Far East Hospitality Trust (0.63x), Sabana Shari’ah REIT (0.64x), Keppel REIT (0.67x), Suntec REIT (0.73x), Starhill Global REIT (0.76x) and Cambridge Industrial Trust (0.77x). These trusts are also trading at P/B levels lower than their respective three-year medians.
Singapore’s Real Estate Sector, particularly the Real Estate Investment Trusts (REITs), has seen increased investor trading activity over the past few weeks. In fact, three REITs and two Real Estate Developers together made up half the 10 biggest volume leaders last week. (click here for the Market Update published 21 November).
Post-US elections, the SGX S-REIT Index has corrected 4.5%, underperforming the relatively flat performance of the benchmark Straits Times Index (STI), but in line with that of the MSCI World REIT Index. Media reports have attributed the sector’s price decline to rising expectations of an interest rate hike by the Federal Reserve next month, which is causing a steepening yield curve (where the yield gap between short-term and long-term bonds widens).
REITs as an asset class typically has an inverse relationship with interest rates. A rising interest-rate environment typically leads to an increase in borrowing costs, impacting the profitability of REITs and their ability to expand inorganically. REITs are generally also viewed as less attractive investments when interest rates rise.
Following the correction, the SGX S-REIT Index now trades at 0.92x its book value. There are 17 REITs within the Index which trade at lower price-to-book valuations. The six REITs trading at the steepest discounts to their book values are: Far East Hospitality Trust (0.63x), Sabana Shari’ah Compliant Industrial REIT (0.64x), Keppel REIT (0.67x), Suntec REIT (0.73x), Starhill Global REIT (0.76x) and Cambridge Industrial Trust (0.77x). These six REITs have averaged total returns of -3.1% since Donald Trump’s victory in the US elections and 1.4% in the year thus far. Saizen REIT# is excluded in the comparison of P/B ratios as it is now a cash trust after disposing of its entire residential property portfolio in March 2016.
The above six trusts are also trading at P/B levels lower than their respective three-year medians. Cambridge Industrial Trust is trading at the steepest discount to its three-year median (-22.4%), followed by Far East Hospitality Trust (-21.9%), Sabana REIT (-21.3%), Keppel REIT (-18.3%), Starhill Global REIT (-12.8%) and Suntec REIT (-9.1%).
The six trusts are listed in the table below, and are sorted by the lowest discount. Click on each stock to visit its profile page on SGX StockFacts.
| Name | SGX Code | P/B | P/B 3 Yr Median | Percentage Discount % |
|---|---|---|---|---|
| Cambridge Industrial Trust | J91U | 0.8 | 1.0 | -22.4 |
| Far East Hospitality Trust | Q5T | 0.6 | 0.8 | -21.9 |
| Sabana Shari'ah Compliant Ind REIT | M1GU | 0.6 | 0.8 | -21.3 |
| Keppel REIT | K71U | 0.7 | 0.8 | -18.3 |
| Starhill Global REIT | P40U | 0.8 | 0.9 | -12.8 |
| Suntec REIT | T82U | 0.7 | 0.8 | -9.1 |
| Average |
| 0.7 | 0.9 |
|
Source: SGX, Bloomberg & SGX StockFacts (data as of 21 November 2016)
The SGX S-REIT Index is a free-float, market capitalisation-weighted index that measures that performance of stocks operating within the REIT Sector. The index is made up of 36 constituents, with a combined market capitalisation of S$65.8 billion and average dividend yield of 7.2%. The SGX S-REIT Index has generated a total return of 8.9% for the year thus far.
Singapore’s REIT Sector is made up of 32 REITs and six Stapled Trusts with a combined market capitalisation of S$69.6 billion. Together, the 38 trusts have averaged a total return of 7.0% in 2016 year-to-date (despite the near-term correction) and have an average distribution yield of 7.0%. This compares with dividend yields of 3.8% for the STI and 4.5% for the MSCI World REIT Index.
The 36 constituents of the SGX S-REIT Index are listed in the table below, and are sorted by lowest P/B ratios. Click on each stock to visit its profile page on SGX StockFacts.
New REIT listings in 2016 include Manulife US REIT, Frasers Logistics & Industrial Trust and EC World REIT.
* In SGD Terms
#Saizen REIT issued a special distribution of S$1.056 per unit to unit holders earlier in March this year upon sale of its portfolio of Japanese properties. It has announced on 15 Aug 2016 a framework agreement for the proposed acquisition of industrial properties in Australia as part of a reverse takeover by SDPSL, an indirect wholly-owned subsidiary of Sime Darby Berhad. The REIT disposed its entire portfolio of residential properties in March 2016, but continued to exist as a cash trust.
Source: SGX, Bloomberg & SGX StockFacts (data as of 21 November 2016)
S&P Dow Jones and MSCI Inc announced earlier this year the creation of a new Real Estate Sector under the Global Industry Classification Standard (GICS®) structure. Real Estate, previously a sub-sector under Financials, now forms the 11th GICS® Sector (from 10) after the New York close on 31 August 2016. The GICS® structure is also used to classify stocks on SGX StockFacts.
Real Estate Investment Trusts (REITs), a sub-sector under Real Estate, raise capital to purchase primarily real estate assets, usually with a view to generate income for unit holders of the fund. It allows individual investors to access real property assets and share the benefits and risks of owning a portfolio of properties, which typically distribute income at regular intervals through dividends.
