Author: Reality Inversion

S-REITs 1Q19 Review

It’s been an exhilarating quarter for those who kept the faith after a terrible 2018 and held onto their REITs this quarter. As explained in a prior post, falling bond yields globally have been the fuel behind the sharp S-REIT rally. The rally had little to do with the underlying fundamentals of the sector, and more of global institutional flows hunting for yield as bond yields plunged. Yield curve Inversion With much ado over the US bond yield curve inversion, what does this mean for REITs? Should we sell all and run for the hills? Well, historically we know...

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S-REITs Jan-Feb 2019 Review

S-REITs have been on tear this year, outperforming the broader market by a wide margin. Economic and market conditions have been optimal for a REIT rally. These conditions include falling bond yields due to expectations of looser monetary policy by major central banks as compared to the last 2 years. Also, a weaker economic outlook, but not quite a recession, means that growth stocks which were in vogue over the last few years, have lost their shine.  Instead, institutional investors have turned their attention to dividend stocks, since they anticipate lower capital gains from growth stocks. Also, appetite among...

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REITs III: Exchange Rates

This is Part III of my series on REITs. Please refer to Part I and Part II. My series on REITs will not be complete without touching on exchange rate, given the internationalisation of the SGX as a major listing hub for REITs all over the world. Even blue chip REITs which were pure-plays in the Singapore space, such as Capitaland Commercial Trust, have gone abroad in hunt of fresh assets. As such, this introduces a new risk that investors cannot afford to ignore, or even take as a trivial risk. Given that the vast majority of REITs are...

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IREIT Global (SGX:UD1U) 4Q18 Review

While 4Q18 results did not spring any major surprises, I noticed several salient points regarding IREIT Global (IREIT). Please refer to my initial piece here. Gearing continues its gradual slide on upward revaluation of assets. As per the quarterly presentation, IREIT’s upward revaluation of its buildings accounted for the reduction of gearing. This is not surprising as rising rental rates in the office market and declining capitalisation rates (cap rate) in Germany has led to higher asset values. While its high gearing levels was always cited as a concern, I believe that the current level (36%) provides the REIT...

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Banks Part II: Asset Quality

This is the second part of my series of the banking sector using the CAMELS framework. Please refer to my first part on capital adequacy here.In my previous article on capital adequacy, I briefly described how the losses incurred from bad loans can wipe out a bank’s capital base. In this article, I will explore how this process works in further detail, as part of understanding a bank’s asset quality. A bank’s asset quality is paramount to its long term viability. Bad loans can haunt a bank for years, if not decades. Credit risk management is key not just for...

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REITs Part II: Interest Rates

This is the second part of my analyses of REITs. Refer to Part 1 here. The first part deals with the components of a dividend yield, where I mentioned that the risk-free rate sets the base for a REIT’s dividend yield. In this post, I will focus on this component, as it is a long term driver of REIT yields as a sector. Brief history of interest rates. Broadly speaking, as REITs trade like junk/high yield bonds, changes in government bond yields generally drive dividend yields. Institutional investors like pension funds, insurance firms, asset management companies and even central banks, tend...

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REITs Part I: Decomposing Dividend Yields

This is the first part of my series in how to analyse REITs. In this article, I will be dissecting a REIT’s dividend yield so that an investor will have a better grasp when combing through the sector. This is not a recommendation to buy or sell any REIT in particular, but is intended to broaden your perspective when looking at REITs in general. As the factors that shape a REIT’s dividend yield appear to be poorly understood by the average investor, I will be sharing my framework of decomposing a REIT’s dividend yields into simpler blocks for investors...

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Ascendas India Trust (SGX:CY6U) 4Q18 Review

This is a quarterly update to my previous write-up on Ascendas India Trust (AIT). AIT reported stellar results, even in SGD terms, considering the steep decline of the INR versus the SGD. The INR slid by 9.8% over the comparable quarter a year ago. NPI rose by 14% in INR terms, and 4% in SGD terms. Economic Outlook The outlook for the INR is more positive for 2019, following a turbulent year for Emerging Markets in general. India’s Current Account Deficit should narrow this year, as crude oil prices have plunged. As India is a net importer of crude oil,...

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