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Ascott Residence Trust (SGX:A68U), a SGD$2.69B mid-cap, is a real estate company operating in an industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios as an asset class. Real estate investment trust, or a REIT, 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. Is the real estate industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether Ascott Residence Trust is lagging or leading its competitors in the industry. Check out our latest analysis for Ascott Residence Trust
What’s the catalyst for Ascott Residence Trust’s sector growth?
SGX:A68U Past Future Earnings Jan 12th 18 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 previous year, the industry endured negative growth of -4.80%, underperforming the Singapore market growth of 7.79%. Ascott Residence Trust also endured some headwinds, though to a lesser extent, delivering delivering a negative earnings growth of -0.11% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -36.32% compared to the wider REIT sector growth hovering next year. As a future industry laggard in growth, Ascott Residence Trust may be a cheaper stock relative to its peers.
Is Ascott Residence Trust and the sector relatively cheap?
SGX:A68U PE PEG Gauge Jan 12th 18 REIT companies are typically trading at a PE of 16x, in-line with the Singapore stock market PE of 15x. 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 7.02% on equities compared to the market’s 7.92%. On the stock-level, Ascott Residence Trust is trading at a PE ratio of 12x, which is relatively in-line with the average REIT stock. In terms of returns, Ascott Residence Trust generated 7.64% in the past year, in-line with its industry average.
What this means for you:
Are you a shareholder? Ascott Residence Trust is a REIT industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of Ascott Residence Trust, there are other REIT companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how Ascott Residence Trust fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Ascott Residence Trust has been on your watchlist for a while, now may not be the best time to enter into the stock. Its growth is expected to be lower than its REIT peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.
For a deeper dive into Ascott Residence Trust’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
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