Monday, April 8, 2013

A brief look at property stocks on SGX

The Straits Times  |  APRIL 08, 2013
CAI HAOXIANG looks at some financial indicators used to measure the performance of stocks classified as real estate investment services and real estate business trusts

The following tables show all the stocks classified as "real estate investment and services" and "real estate investment trusts" under the Industry Classification Benchmark operated by index provider FTSE Group.

There are 41 property investment stocks and 30 real estate investment trusts (Reits) and property-related business trusts listed on the Singapore Exchange (SGX). Most of the stocks in the second table are Reits, but a few are business trusts governed by different rules.

"Mkt cap", or market capitalisation, measures how much the entire company is worth in the market. It is a rough measure of the company's size. For example, property developer CapitaLand, with a market capitalisation of $15 billion, is a giant compared to Catalist-listed China property developer Starland Holdings, which has a market capitalisation of $12 million. Large cap companies are usually defined as companies with a market value of $10 billion or more. Small cap usually refers to stocks with a market value of under $2 billion.

The top five real estate investment and services stocks - Hongkong Land, CapitaLand, Global Logistic Properties, City Developments and CapitaMalls Asia - are all on Singapore's Straits Times Index, a collection of the most stable and liquid stocks.

Data in the table were compiled from Bloomberg in the afternoon of April 4. Latest financial data can be found on websites like Reuters, Bloomberg and Yahoo Finance.

Other than the name of the stock and the market cap, a few additional financial indicators are provided here. These indicators are calculated from the company's price as well as its latest financial statements, available on the SGX website. The indicators here barely touch the tip of the iceberg. Financial analysts use an exhaustive analytical process to decide whether a company is suitable to invest in.

"Ind yield" refers to indicated yield, the proportion of dividends per share out of the company's share price that the company is expected to pay out in the year ahead, based on its most recently declared dividend.

"P/B", or price to book ratio, is calculated by dividing stock price by a company's book value per share. This can be calculated by subtracting total liabilities from total assets from the company's most recent balance sheet, and dividing the remainder by shares outstanding. This gives some idea of what an investor would get from the company if it had to stop functioning as a business entity and sell off what it owns.

Property developers typically trade near what their properties are worth, if properties are mostly what they own. In fact, many trade below their book values. This is because some properties cannot be sold immediately, or easily. Some developers hold land. It takes many years for a property to be built on it. Sometimes, the market does not believe that a company's properties are worth that much.

Two years ago, Reits were mostly trading below their book values. But an uncertain macroeconomic environment drew investors to their stable cashflows. Today, many trade above their book values.

"Debt to equity" shows the proportion of debt among common equity, or the residual claim of common shareholders on a company's assets. Sometimes total liabilities is used instead of debt. This ratio is also known as a gearing ratio. It represents how aggressive a company borrows. Most property developers need to borrow to finance their development costs. For developers who borrow a lot, their eventual returns have to exceed their interest payment costs. Otherwise, the company faces bankruptcy if they cannot pay interest on their debt and banks refuse to lend to them.

Reits are considered more financially stable as they are required by regulation to keep debt levels low.

The debt to equity ratio is thus not used here. We replaced that with "return on equity" to measure how efficient the Reit is at generating profits based on what shareholders have put in.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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