VALUE INVESTING FRAMEWORK IN EXAMINING SINGAPORE REIT STOCKS

Abstract

A value investing framework is developed to guide the study to investigate the intrinsic value of SREIT (Singapore Real Estate Investment Trust) companies, and to infer that the SREITs can offer investors an adequate "margin of safety". "Margin of safety", as a central investing concept recommends that the price an investor pays for an investment asset must always lie significantly below its fundamental or intrinsic value. A true margin of safety is one that is based upon a "thorough analysis", which is substantiated with facts, persuasive reasoning and the reference to a body of actual experience. The "thorough analysis", in turn involves the examination of factors such as the regulatory environment of the SREITs, the soundness and prospects of SREITs, the risks facing SREITs and their market, the economic outlook for the SREITs and the potential competition facing the SREITs. The study finds that while SREITs operate in one of the friendliest regulatory regime in Asia, it may soon be facing competitive threats, as other Asian countries continue to deregulate. SREITs, backed by strong parentages, enjoy several competitive advantages over competitors and these SREITs have adopted sustainable growth strategies accordingly. The outlook for the SREITs looks favourable as the structural demand for SREITs remains robust. Investors' positive sentiments in the SREITs are recognized by the market that explains why SREITs are currently trading above their book values. The study concludes that SREITs are currently trading at a premium and purchase of overpriced SREIT stocks will not offer investors adequate "margin of safety".