Singapore Reits And Their Bonds – A Game Changer
Something to share that is of significance to bond investors.
Citibank equity research just sent out a piece on Singapore Reits, a good 67 pages chock a block full of data and information.
To me, the most important revelation is their decision to revise their valuation matrix with a new risk free rate assumption, worded as a “more suitable” “normalised” rate, that is taken from a period of normalising US economic growth and tightening monetary policy.
For this new risk free rate, they used the average 10Y SGS yield for the 5 year period between 2003-2008 which is 3.1%. The previous rate was 2.2%.
The result being that their target prices for the major Reits in Singapore are all cut by between 11-17%.
Ascendas REIT
New Target Price 2.00 (2.42 prev)
NEW YIELD FOR 2013 : 5.5%
Upgrade to Buy: AEIs, Back-filling of Space Could Fuel Growth
PRICE | YIELD | |||
ASCENDAS REAL ES | 4 | 3-Feb-22 | 100.79 | 3.89 |
CapitaCommercial Trust
TP 1.44 (1.72)
NEW YIELD FOR 2013 : 5.7%
Staying Neutral on Risk of DPU Dip in 2014E
PRICE | YIELD | |||
CCT MTN PTE LTD | 3.25 | 15-Dec-15 | 101.96 | 2.36 |
CCT MTN PTE LTD | 3.64 | 18-Feb-15 | 102.45 | 1.93 |
CapitaMall Trust
TP 2.00(2.42)
NEW YIELD FOR 2013 : 5.1%
Downgrade to Neutral: Funan Remains Potential Kicker
PRICE | YIELD | |||
CMT MTN PTE LTD | 3.75 | 2-Aug-24 | 91.46 | 4.76 |
CMT MTN PTE LTD | 3.55 | 1-Sep-17 | 102.83 | 2.80 |
CMT MTN PTE LTD | 2.85 | 1-Sep-14 | 101.36 | 1.46 |
CMT MTN PTE LTD | 3.85 | 15-Mar-17 | 104.07 | 2.63 |
CMT MTN PTE LTD | 3.288 | 28-Jan-15 | 102.08 | 1.77 |
Frasers Centrepoint Trust
TP 1.90 (2.25)
NEW YIELD FOR 2013: 5.8%
Awaiting Acquisition of Changi City Point
PRICE | YIELD | |||
FCT MTN PTE LTD | 3 | 21-Jan-20 | 97.88 | 3.31 |
FCT MTN PTE LTD | 2.3 | 12-Jun-15 | 101.33 | 1.53 |
FCT MTN PTE LTD | 2.85 | 12-Jun-17 | 100.98 | 2.58 |
FCT MTN PTE LTD | 2.8 | 24-Jan-14 | 100.37 | 1.83 |
FCT MTN PTE LTD | 3.5 | 12-Feb-15 | 102.07 | 2.03 |
Keppel REIT
TP 1.16 (1.33)
NEW YIELD FOR 2013 : 6.7%
Income Support Stabilises DPU, with Growth out of Australia
Mapletree Commercial Trust
TP 1.25 (1.49)
NEW YIELD FOR 2013 : 5.3%
Growth Driven by Vivocity and Mapletree Anson
PRICE | YIELD | |||
MAPLETREE COMMER | 3.2 | 12-Apr-21 | 96.96 | 3.66 |
MAPLETREE COMMER | 3.6 | 24-Aug-20 | 100.47 | 3.53 |
Mapletree Industrial Trust
TP 1.53 (1.71)
NEW YIELD FOR 2013 : 6.1%
Organic Growth to Moderate, Inorganic Growth to Pick Up
PRICE | YIELD | |||
MAPLETREE INDUST | 3.65 | 7-Sep-22 | 97.75 | 3.95 |
MAPLETREE INDUST | 3.75 | 8-Mar-19 | 102.82 | 3.19 |
Mapletree Logistics Trust
TP 1.15 (1.30)
NEW YIELD FOR 2013 : 6.2%
Growth to be Driven by Reversions and Benoi Redevelopment
PRICE | YIELD | |||
MAPLETREE LOGIST | 5.375 | PERP | 102.04 | 4.81 |
MAPLETREELOG TRE | 3.295 | 26-Mar-15 | 101.73 | 2.16 |
Parkway Life
TP 2.22 (2.50)
NEW YIELD FOR 2013 : 5.4%
Defensive Long-term Lease Structure, but Upside Capped
Suntec REIT
TP 1.68 (1.93)
NEW YIELD FOR 2013 : 5.4%
Upgrade to Buy: Suntec City Mall to Drive Forward DPU Growth
PCRT
TP 0.50
NEW YIELD FOR 2013 : 7.7%
FORTUNE REIT
TP 7.8
NEW YIELD FOR 2013 : 4.7%
ASCENDAS INDIA TRUST
TP 0.78
NEW YIELD FOR 2013 : 5.4%
PRICE | YIELD | |||
ASCENDAS PROPERT | 3.8 | 1-Oct-18 | 98.75 | 4.07 |
ASCENDAS PROPERT | 3.5 | 7-Oct-16 | 99.50 | 3.67 |
This is a game changer for us all, bond investors especially.
If the target prices are factoring in a higher cost of liquidity and benchmark, the bonds will invariably follow suit. And given that equities are usually the first to react, we now have basis for comparison.
Friends are asking me if Reits are cheap enough to buy these days. My answer is the same, “relative to what ?” and now, with the market starting to re-evaluate their benchmarks, what do you think ?
I would stick to the Tier 1 names if anything. As for the rest, prices are not going up anytime soon.
Question is, what is the historical yield spread of reits over say, 10y SGS bond? If we apply that formula we would get the answer right?
I thought about that and did the correlations and it seems there is none.