SPH REIT (SGX:SK6U) is a $2.59B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether SPH REIT is a laggard or leader relative to its real estate sector peers. Check out our latest analysis for SPH REIT
What’s the catalyst for SPH REIT’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. In the past year, the industry delivered negative growth of -0.0045%, underperforming the Singapore market growth of 10.43%. SPH REIT leads the pack with its impressive earnings growth of 21.76% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at -16.32% over the next couple of years.
Is SPH REIT and the sector relatively cheap?
The REIT industry is trading at a PE ratio of 15.7x, in-line with the Singapore stock market PE of 14.3x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 7.64% on equities compared to the market’s 7.95%. On the stock-level, SPH REIT is trading at a PE ratio of 16x, which is relatively in-line with the average REIT stock. In terms of returns, SPH REIT generated 6.56% in the past year, which is 1% below the REIT sector.
Next Steps:
SPH REIT’s future growth prospect aligns with that of the broader market and it is trading in-line with its peers. So if you like its growth prospects, you’ll be paying a fair value for the company. If the stock has been on your watchlist for a while, now may be the time to enter. However, before you make a decision on the stock, I suggest you look at SPH REIT’s fundamentals in order to build a holistic investment thesis.
-
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
-
2. Historical Track Record: What has SK6U’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
-
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of SPH REIT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.