Wednesday, December 18, 2013

REIT- sufficiently attractive for consideration

Over the past few months, high-yield assets were sold off as interest rate regime began to show signs of reversing after a long decline (see Chart 1 below). Among the high-yield assets, REITs have corrected significantly over the past few months. If you look at Chart 2, you will see that DJ Equity REIT has dropped below its 200-day SMA line. The index seems to have found support at around the 250-mark (with the reaction low converging at that level). The last time the index dropped below the 200-day SMA line was in late 2011. Back then, the reaction lows reflect an inverted head-and-shoulder pattern. Will the index recover from here? We will have to wait and see.

Chart 1: Treasury Yield 30 year's monthly chart as at Dec 13, 2013 (Source: Yahoo Finance)

Chart 2: DJ Equity REIT's weekly chart as at Dec 13, 2013 (Source: Yahoo Finance)

In our local bourse, we do not have an index for REITs. But we can see that the individual charts below, the drop in the prices of REITS had been horrific. Unlike the US markets, our REITs were hit by a double whammy - ongoing foreign find outflow and fear of interest rate hikes to come.

I will look at the top 3 REITs in term of market capitalization, excluding IGBREIT as it was listed only 1 year ago. All 3 have a P/BV of about 1.1 times. In term of yield, SUNREIT and CMMT have higher yield than PAVREIT. See the table below.

Table: Top 3 REITs on BURSA as at Dec 13, 2013

If you look at the charts below, you will see that all 3 REITs had dropped substantially. The retracement is about 56% for SUNREIT and 62-63% for PAVREIT and CMMT. All these REITs are now trading at or near their horizontal support.

Chart 3: CMMT's weekly chart as at Dec 16, 2013 (Source: Tradesignum)

Chart 4: PAVREIT's weekly chart as at Dec 16, 2013 (Source: Tradesignum)

Chart 5: SUNREIT's weekly chart as at Dec 16, 2013 (Source: Tradesignum)

Based on technical consideration, I believe that you can consider buying this asset for your portfolio. In addition, these REITs are approaching their book value soon. With yield better than 6%, these REITs could be attractive assets for income purpose. (Note: SUNREIT pays income 4 times a year.)

However, with interest rate hikes a distinct possibility and the outflow of foreign fund a continuing drag, I do not believe we will see a strong recovery any time soon. We can only hope for a bottom and then a slow climb-up many months down the road. Thus, any buying should be carried out very slow.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, CMMT, PAVREIT & SUNREIT.

1 comment:

Kai-Foong Kok 郭继锋 said...

We have been hearing more and more crying from REIT holders. This atmosphere seems to be bottoming. Lets see, now Fed announced to start tapering at mild 10b reduce bond buying with continue low interest rate.