First Real Estate Investment Trust (SGX:AW9U) is a SGD$1.10B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. 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. Today, I will analyse the industry outlook, as well as evaluate whether First Real Estate Investment Trust is lagging or leading in the industry. View our latest analysis for First Real Estate Investment Trust
What’s the catalyst for First Real Estate Investment Trust’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 -4.80%, underperforming the Singapore market growth of 7.76%. First Real Estate Investment Trust lags the pack with its negative growth rate of -33.78% over the past year, which indicates the company will be growing at a slower pace than its REIT peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 26.85% in the upcoming year.
Is First Real Estate Investment Trust and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 16x, in-line with the Singapore stock market PE of 14x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 7.02% on equities compared to the market’s 7.94%. On the stock-level, First Real Estate Investment Trust is trading at a higher PE ratio of 24x, making it more expensive than the average REIT stock. In terms of returns, First Real Estate Investment Trust generated 5.52% in the past year, which is 2% below the REIT sector.
What this means for you:
Are you a shareholder? First Real Estate Investment Trust’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in First Real Estate Investment Trust’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto First Real Estate Investment Trust as part of your portfolio. However, if you’re relatively concentrated in REIT, the First Real Estate Investment Trust’s high PE may signal the right time to sell.