Fishing for Opportunities in Real Estate Stocks

It’s been a tough year for stocks in Singapore given how the Straits Times Index (SGX: ^STI) is likely to end 2015 with a mid-teens percentage decline.

But amidst the wreckage may lie a bargain or two. For some help in bargain-hunting among real estate stocks in Singapore, we can turn to a recent report by bourse operator Singapore Exchange Limited (SGX: S68).

Cheap real estate stocks

The report by Singapore Exchange describes the SGX Real Estate Index, an index formed only this month as part of the company’s new indexes business. The SGX Real Estate Index consists of 54 real estate-related companies.

Interestingly, the index itself was trading at a price-to-book (PB) ratio of only 0.8 as of 22 December 2015 (subsequent valuation numbers in here are also given as of this date), suggesting that real estate stocks as a group are not particularly well-liked by the market. Let’s have a look at some companies that are trading at PB ratios lower than that of the SGX Real Estate Index.

Notable real estate players Hongkong Land Holdings Limited (SGX: H78) and UOL Group Limited  (SGX: U14) – the two are blue chips that are part of the Straits Times Index – belong to that group. The duo were trading at PB ratios of 0.6 each. As they have valuable investment properties under their umbrella, the two companies be worth a deeper look by investors.

The SGX Real Estate Index also offered a trailing dividend yield of 5.9%. Lippo Malls Indonesia Retail Trust (SGX: D51U), with a yield of 9.9%, was among the index stocks which offered a higher-than-average dividend yield. Lippo Malls’ high yield may be due to the current uncertainty regarding a possible delisting of the real estate investment trust (REIT) by its sponsor.

High yields seem to be a feature among other REITs as well. CDL Hospitality Trust (SGX: J85), a stapled trust, offered a yield of 8%. Elsewhere, industrial REIT AIMS AMP Capital Industrial REIT (SGX: O5RU) sported an 8.1% trailing yield. The angst around the recent interest rate hike by the Federal Reserve and general economic concerns could be behind the higher distribution yields.

Foolish takeaway

High and low valuations represent a starting point for further investigation by investors. Without a business point of view that considers the long-term business prospects of a stock, looking at its comparable ratios may be less useful.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.