Time to invest in S-REIT now? Which counter stands out?

Time to invest in REITs?

Two months ago we saw one of the fastest drop of our STI index the last few year. It came down about 10% in just short one month time frame. Practically wiping out all the gains we had from the beginning of the year.

Since then the index have recovered slightly. Now it is backed  up to about 3200 level from the low of 3070 level. Hitting slightly above the 200MA line but still below the 50 and 100MA. That to me, is a good sign of some recovery. No doubt there will be some roller coaster ride ahead of us, but from pure technical point of view, this is an interesting juncture to load back up on some stocks. Especially since I have off loaded a few 2-3 months back.

I want to beef up my yield generating portfolio so I went hunting for goods REITs. I did some research and here is what I found out about the sector in general.

Sector research

1) The average P/NAV for S-reit is about 1.09. So in general most Reits are fairly priced. Not too high not too low. So if I want to invest in one, I need it to offer me some discount to act as my buffer.

2) The average Yield is about 5.55%. Not very attractive but not too shabby too. I would prefer it to be around 6% or more.

3) The average debt/equity ratio is about 0.6. A bit on the high side.

REIT filtering

Based on the above information, to took out my excel spreadsheet and start to filter a few stock for my watch list. the criteria I used for filtering are:

1) Yield/(P/NAV)- No fixed cut off number here. But I will only look at the top 5-6 stock that return the highest value. the usefulness of this single ratio is it combines the top 2 factors in considering REITs into one simple ratio. It basically tells me which counter will offer me the best “discount” for what I am looking for.

2) I look at the yield itself. I will not be interested in any counter that offers me less than the industry average or my target of at least 6%. So anything less than 6% is out for me.

3) Next I look at the counter’s leverage. Debt to Equity ratio is one factor plus I also look at the company’s short term loan and their ability to withstand any short term spike in lending interest rate.

My shortlisted counters

Here is a snapshot of my filtering spreadsheet. The top choice for me is Suntec Reit. A lot more “green”color. hahah.

I also appreciate the fact that Suntec have successfully restructured their portfolio to focus more on office rental space rather than retail. As of the last report Suntec Reit have about 70% of their lettable area for offices. Plus that fact that their upgrading work in Suntec city is going smoothly, so I think the potential for higher yield is there.

But wouldn’t the talk of increasing lending rates affect the attraction of  Reits? What do you think? What do you think my cut lost should be?

Note: this article first appeared in http://myfcoach.com/time-to-invest-in-s-reit-now/ (10 mins earlier lah)