To The Moon

REIT Watch - Current PB ratios vs 5-year averages of the 10 largest weights of the iEdge S-Reit Index

It has not been smooth sailing for REITs over the recent months with higher interest rates adding pressure to share prices and valuations.

Despite this, the S-REIT sector is now trading at a discount of close to 20% compared to its longer-term average in terms of price-to-book ratio.

This is indicated by the iEdge S-REIT Index currently trading at a price-to-book (PB) ratio of 0.87 times, against the index’s five-year average PB ratio of 1.04 times – which showed a discount of 16%. 

REIT Watch - iEdge SREIT Index's PB ratio trades below -1 SD of the longer-term average

The iEdge S-REIT Index and associated variant indices provide benchmarks for a number of portfolio products such as ETFs, robo advisories such as SYFE REIT+ Portfolio, index funds, and futures contracts.

Out of the 10 index heavyweights, the five S-REITs that are trading at larger discounts to their five-year average price-to-book ratios are  $Mapletree PanAsia Com Tr(N2IU.SI)$ ,  $Keppel DC Reit(AJBU.SI)$ ,  $Frasers L&C Tr(BUOU.SI)$ ,  $KEPPEL REIT(K71U.SI)$ , and  $Mapletree Ind Tr(ME8U.SI)$ .

Keppel REIT recently announced that it has entered into a contract of sale to acquire an effective 50% interest in 255 George Street, a freehold Grade A office building in Sydney, Australia, for A$363.8 million (S$323 million).

The property is located within Sydney’s CBD Core Precinct and has a committed occupancy rate of 93% and has a weighted average lease expiry of 6.8 years.

Keppel REIT’s manager expects the property to generate a first-year yield that exceeds 6% and distribution per unit accretion of 1.4% on a pro forma basis. Some of its key tenants, across a diversified tenant base ranging across various industries, include the Australian Taxation Office and the Bank of Queensland.

Post-acquisition, Keppel REIT’s Singapore-centric portfolio will be approximately S$9.6 billion across 13 properties in Singapore (76.5% of its assets under management (AUM)), Australia (19.3% of AUM), South Korea (3.3% of AUM) and Japan (0.9% of AUM).

The iEdge S-REIT Index is widely seen as one of S-REITs’ barometers and measures the performance of REITs listed in Singapore. Within the index are 31-member constituent S-REITs, and the index has a distribution yield of 5.7%.

There are currently two exchange traded funds (ETFs) listed in Singapore that are pure-play S-REIT ETFs – the $CSOP iEdge SREIT ETF US$(SRU.SI)$ and $LION-PHILLIP S-REIT(CLR.SI)$ .

REIT ETFs provide investors with instant diversification and access to REITs, as they track the performance of an underlying index – in this case a basket of REITs. Buying an ETF is also less costly than if one were to build a similar portfolio by buying the individual REITs. Investors can also invest in the REIT ETFs using a Regular Shares Saving Plan. 

https://www.sgx.com/research-education/market-updates/20240408-reit-watch-s-reit-sectors-pb-ratio-almost-20-discount