MENU

Is it Time To Buy REITs Now?

With roughly 30 Real Estate Investment Trusts listed here in Singapore, investors are truly spoiled for choice in the REITs segment.

Most REITs have been trading off their record high valuations since 2013 after the United States Federal Reserve first hinted at the possibility of a tapering of their massive bond-buying programme earlier in that year (the Fed has since reduced its monthly bond purchases from US$85 billion per month to US$65 billion per month).

In any case, when the Fed first gave signs of its willingness to taper, it led to the market expecting an interest rate hike in the near future (with actual tapering already on the way, expectations of an increase in interest rates are perhaps even higher).

As most REITs are using shorter-term borrowings to finance the purchase of longer-term real estate investment assets, they are likely to be affected once they have to refinance their existing debt at higher interest rates, assuming the global interest rate environment does move up.

However, given their much lower valuation now, are there currently any hidden value in REITs?

REITs with the lowest gearings

If the market indeed fears an increase in interest rates, then perhaps REITs with stronger balance sheets should be able to weather any potential rate hikes more effectively.

Some of the REITs with a gearing ratio (Total Debt/Equity) below 30% include AIMS AMP Capital Industrial REIT (SGX: O5RU), Cambridge Industrial Trust (SGX: J91U) and SPH REIT (SGX: SK6U).

REIT

Price

Dividend*
(SG cents)

Yield

Book value

Gearing

AIMS AMP

S$1.345

1.116

8.3%

S$1.52

26.4%

Cambridge

S$0.72

4.976

6.9%

S$0.70

28.2%

SPH REIT

S$0.975

1.860

2.0%

S$0.89

27.0%

* Dividends are for a trailing 12 month period

Source: S&P Capital IQ; SPH REIT earnings releases

AIMS AMP Capital Industrial REIT has a focus on the Singapore industrial property market. Currently it has 25 industrial properties in Singapore, serving the needs of port and airport facilities.

Cambridge Industrial Trust is also an industrial REIT in Singapore. It has more than 40 properties all around our island nation, serving a diverse customer base.

SPH REIT is a relatively new REIT which concentrates on the retail property market here. It has two malls under its management, namely Paragon and Clementi Mall.

High-yielding REITs

With the selloff in REITs, some of the trusts are reaching record high yields. A few of the REITs with above average yields based on past distributions include Ascendas Hospitality Trust (SGX: Q1P) and Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (SGX: M1GU).  Both REITs are yielding more than 8% based on their current prices and their past distributions over the last 12 months.

REIT

Price

Dividend*
(SG cents)

Yield

Book value

Gearing

Ascendas

S$0.735

6.20

8.4%

S$0.73

35.8%

Sabana

S$1.025

9.38

9.2%

S$1.10

36.5%

* Dividends are for a trailing 12 month period

Source: S&P Capital IQ; Various REITs’ earnings releases

Ascendas Hospitality Trust is an investment trust with about a dozen hotels in total located in Australia, China, Japan and Singapore. At the moment, Australia is the core market for the REIT.

Meanwhile, Sabana Shari’ah Compliant Industrial REIT, as its name aptly suggests, has a strong industrial bent. It is also the largest listed Shari’ah Compliant REIT with interests in more than 20 properties.

Foolish Summary

Although there are risks involved in the REITs sector presently, there might still be opportunities in some of the trusts. As long as we are comfortable with the long-term prospects of the trust and the strength of their balance sheets, the rise in interest rates might end up just being a road bump in your portfolio.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.