Singapore REITs - UOB Kay Hian 2016-01-20: Stripping Out Dividends For Outperformance

Singapore REITs - UOB Kay Hian 2016-01-20: Stripping Out Dividends For Outperformance  REIT ASCOTT RESIDENCE TRUST A68U.SI  CAPITALAND COMMERCIAL TRUST C61U.SI  MAPLETREE LOGISTICS TRUST M44U.SI 

Singapore REITs: Stripping Out Dividends For Outperformance 

  • Contrary to the efficient market hypothesis, empirical evidence shows that the dividend stripping strategy has enabled Singapore REITs to outperform the market 62% of the observed times, yielding excess returns of 1.4%. 
  • Our data identifies MINT, PREIT and MCT that have stood out in terms of outperforming the market with positive returns. 
  • We believe the S-REIT selldown is overdone. Maintain OVERWEIGHT. 
  • We prefer deep value and diversified REITs, with ART, CCT and MLT as our top picks



WHAT’S NEW 

  • With the majority of REITs poised to pay out dividends, we examine the dividend stripping strategy of buying during the cum-dividend period and selling after a REIT goes ex-dividend. 
  • This strategy takes advantage of the dividend paid out, the recovery in share price after the ex-date and the fact that share prices do not always drop by the same amount as the dividend paid after the ex-date. 


ACTION 


• Empirical evidence on stripping out dividends for outperformance. 

  • Contrary to the efficient market hypothesis, our analysis of REITs with a significant dividend history indicates that dividend stripping tends to work 62% of the observed times during dividend ex-dates, yielding excess returns of about 1.4%. 
  • During periods of outperformance, the market’s historical relative gain observed was 4.5%, while the loss observed was 3.8%. We determined this by computing over 600,000 period scenarios for which investors could enter and divest REITs during the 30-day period prior to and post individual ex-dividend dates since listing. Note that past performance is not necessarily an indicator of future outcome. 

• Optimal period trade-off between relative returns and outperformance ratio. 

  • We saw that the optimal holding period of 44 days that yielded the highest relative returns of 3.2% on average is nearly twice the 23-day holding period observed for the highest outperformance ratio of 82%. 
  • Returns seem higher for extended holding periods beyond the dividend ex-date (22 days on average) while outperformance ratio tends to be achievable even with shorter periods (9 days on average). 

• Mapletree Industrial Trust, Parkway Life and Mapletree Commercial Trust stand out...

  • ... as they have historically outperformed the market 76.5%, 68.5% and 66.7% of the observed times respectively since their first dividend payouts. They have yielded average relative market returns of 2.9%, 2.7% and 2.3% individually during the stipulated period. 
  • We have filtered out REITs that made their maiden dividend payouts less than three years ago (ie Keppel DC REIT, Frasers Hospitality Trust) and those that were listed with an overseas focus (ie CapitaLand Retail China, IREIT Global). 

• MAINTAIN OVERWEIGHT; top picks are CapitaLand Commercial Trust, Ascott Residence Trust and Mapletree Logistics Trust. 

  • We believe concerns over a rise in interest rates have been overblown. 
  • S-REIT yield spreads remain the most attractive regionally, with upcycle yield spreads indicating over 38% upside potential. 
  • We prefer deep value and diversified REITs with ART, CCT and MLT as top picks.


PEER COMPARISON




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-20
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.39 Same 1.39
BUY Maintain BUY 1.79 Same 1.79
BUY Maintain BUY 1.28 Same 1.28


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