Saturday, April 5, 2014

Some Simple Singapore REITs Statistics

Since I've been recently quite fascinated with the Price-To-Book ratio as a metric for analyzing securities, I took a casual search on the internet and related it to REITs, and I found this surprisingly interesting article on SharesInvestor about Singapore REITs, as well as a related article on FundSupermart.

The reason why I like this article is that they really broke down the Singapore REITs market in a very clever and intuitive way for any reader to digest. I think the first table regarding the make-up of the REIT market will definitely change, since more have been added into the mix since Feb 2013.

The outperformance of REITs over the STI during the past 5-6 years is also quite nicely and clearly shown in their graph. I didn't know that the moves were so in lockstep with the broader Singapore economy. I would have assumed that the ups and downs would not be so distinctive. In that sense, the REIT market does have a seemingly high beta to the STI.

However, the chart that I like, and was the one that drew me to the article, is this about the PB ratio shown below:



The Price-to-Book ratio here might not be perfectly clear, but I think it is a pretty good graph to show the range of the PB ratio that Singapore REITs have. By eyeballing it, PB ratios of 1.5 looks very rich and seems like the upper boundary, whereas 0.4 seemed to be the floor during the GFC in 2008 and 2009. However, the average PB ratio seems to sit roughly between 0.9 and 1 for the majority of the period in the past 5 years.

Next, my next favourite graphs that they have, dividend yields:


The first image is from the older article, but I like it because it shows you the SGS 10 year bond yield, and you can visually see the difference of the spread between the yield of the REITs. The second image is pretty awesome too. However, you can see that there is a slight difference in the data peaks of the 2 graphs. One peaked earlier, and one peaked later, why is that so? I suppose it is cause by the difference in the REITs % allocation that they have. However, the main point of this is that dividend yields of REITs can be very attractive. Average yields are hovering around 6% and during times of stress, the price of the REITs get beaten up so badly, that their yield basically doubles (PB drops to 0.5) and yields of 12% and above present themselves!

My question: Would you buy something that is suddenly on a 50% discount because of a special promo valid only for a few months? The amount of revenue it generates will also cover for itself in about 8 years even if there is no capital gains. With some slight capital gains along with the dividends collected, there is a high chance to double your investment within 2 years, and almost all downside risk is gone. Would you take such a risk?

Personally, I think I would if I could. What about you?

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