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.