Would Benjamin Graham Buy Ascendas Real Estate Investment Trust?

Ascendas Real Estate Investment Trust (SGX: A17U) is commonly referred to as A-REIT. The Real Estate Investment Trust manages a portfolio of 104 properties in Singapore and two business parks in China.

A-REIT’s property interests span Business & Science Park, Integrated Development, Amenities and Retail spaces, Industrial properties and Logistics & Distribution Centres.

In common with most REITs, the company is obliged to distribute at least 90% of its income among investors. This means that its encouraging earnings yield of 8.8% translates into an equally appealing dividend yield of 6.1%. That is more than twice the risk-free yield currently available on the 10-year US Treasury Bond.

The decent dividend yield, which is almost a given for Real Estate Investment Trusts, could explain their huge popularity among income investors. However, value investors are likely to need more convincing before parting with their hard-earned cash.

A price-to-book ratio of 1.1, which is below the market average of 1.4 would suggest that A-REIT is presently not too expensively priced compared to other stocks. It would also suggest that there is little in the way of a margin of safety. But is a wide safety net really that important?

A look at the balance sheet suggests that A-REIT does not come without risks attached. This might be cause for value investors to demand one.

The company has little in the way of current assets. This results in a low current ratio of 0.16. Should A-REIT’s creditors demand repayment tomorrow, the company might only be able to pay back 16 cents on the dollar.

Whilst this measure is completely hypothetical, it could still be a useful measure of the risk. In terms of other assets, A-REIT has nearly S$8b of non-current assets. Its Net Assets stand just shy of S$5b.

There can be lucrative rewards with an investment in A-REIT, most notably being the attractive dividend yield. However value investors, who by nature are ostensibly cautious, might need more convincing.

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