Singapore REIT index is lowest in one and half years. Time to get in yet?

S-REIT index is at 1.5 years low

No surprises as any tampering effort will increase interest rate thus make the cost of borrowing higher for all S-REIT players. And ever since Mr Fed have been hinting about the QE tampering, S-REIT counters have been suffering. Check the chart out below and you can see very clearly that the index now is way below all the moving averages (50,100, 200).  Plus you can see the lows getting lower. The last time it got this low was Aug 12!

What doe this means? It means from a technical point of view it is very bearish and is not prudent to enter yet. I suspect this downward trend will go lower before stabilizing.

How about fundamental side?

If readers have been following my post (previous post here), you will know that I like to use a simple financial ratio to filter potential good REIT to put on my watch-list. The ratio is Yield/ (Price/NAV). The higher the ratio number the higher ranking it s on my filter list. I did a quick sort and here are my top 10 REIT watch list:

There is a few interesting observation of this top 10:

1) Fortune REIT is currently at top spot is because their price have been dropping for the past few month. Even though they had a fantastic last quarter where they reported their net property income was up 18.3% to a record HK$1.3B in FY13 (news here). But their price is still being hammered. So much so that their P/NAV is now at 44% discount! So why the low price? Well, for one this REIT collects rent in HK$ so there is some currency risk plus yield at current level is still not attractive enough. Action for me will be to put this counter on my watch list and monitor it closely. I have look through their portfolio, I like their AEI and I think it will have good growth potential. When it hits 7% yield, I will be interested.

Note: if you like to learn more about how financial ratios like NAV are used, do drop us a note for free workshop here.

2) Sabana REIT yield is fantastic! But wait, don’t be as happy as yet! As savvy investors we need to ask why is this counter hitting above average yield. Well, there are a few “negative” news floating around this counter for the past few month. It started with a private placement of $40M shares in Sep 13 at a much discounted price of $1. And they have to deal with a substantially high debt of $100M (22%) maturing in 2014. So with high chance of increase interest rate, investors are naturally concern about their ability to get cost effective loans. But not all are bad news, recently they bought a new property at Chai Chee Lane and this will definitely help in boosting their rental income. Action item for me will be also to put this in my watch-list. Their technical are still bearish and I will sit up when it reaches about $1.

3) Saizen REIT prices have been holding stable after the price consolidation exercise. I was hoping to add more position expecting the price to drop after consolidation but that didn’t happen. So I will wait for next opportunity. You can read more about this counter in my previous post here.

4) Suntec REIT yield is now less attractive. Partly because the price have recovered quite a bit from a low of $1.50. Action for me is to hold for a longer term.

Summary:

With the recent drop and slight recovery of the STI, I was hunting around for good counters to pick up. But looks like the REIT sector is not the one yet as the technical are still telling me the drop is not yet over . But it is interesting to see some fundamentally sound companies’ prices coming down and yield going up. I think when yield gets to the 8 or 9%, it will become more interesting and more investors will start looking at this sector again. When that happens we will be ready. 🙂

Disclaimer: i am vested in a few counters mentioned above.

Note: this article first appeared in my other blog: wealthdirections.com