Are These Industrial REITs Trading For Less Than What They’re Worth?

The price-to-book (PB) ratio is a popular way to value a real estate investment trust (REIT).

The P/B ratio is calculated by dividing the market capitalisation of a REIT with its book value, or net asset value. Theoretically, having a P/B ratio that is less than 1 means that a REIT is trading for less than what it’s worth – an investor who buys the REIT could liquidate all its assets, settle all its obligations, and still end up with a profit.

recent report indicated that the average P/B ratio for Singapore’s REIT universe (the local stock market has 27 REITs and six stapled trusts) was 0.9 as of 8 June 2016.  The list included seven Industrial REITs, as defined by the Global Industry Classification Standard.

Here’re four quick highlights from the report on the seven Industrial REITs (figures as of 8 June 2016, unless otherwise stated):

  1. Cambridge Industrial Trust (SGX: J91U) is in the list and it has a P/B ratio of 0.8. The REIT houses over 51 industrial properties in Singapore under its umbrella. It also offers a distribution yield of 8.1%. Over the past three years, Cambridge Industrial Trust has recorded a negative total return of 12.2%.
  2. AIMS AMP Capital Industrial REIT  (SGX: O5RU) is somewhat similar to Cambridge Industrial Trust. The former is home to 26 industrial properties (primarily in Singapore) and has a P/B ratio and distribution yield of 0.9 and 8.6%, respectively. But unlike Cambridge Industrial Trust, AIMS AMP Capital Industrial REIT had enjoyed a total return of 6.9% over the past three years.
  3. Not all Industrial REITs are trading below their book values. For instance, Mapletree Logistics Trust (SGX: M44U) trades at its book value. The REIT boasts a slate of 118 industrial properties across eight countries, as of 31 March 2016. Over the past three years, Mapletree Logistics Trust has clocked in a total return of 1.8%. The REIT also offers a 7.3% distribution yield.
  4. Mapletree Logistics Trust’s close cousin, Mapletree Industrial Trust (SGX: ME8U), is another REIT that’s not trading below book value – it has a P/B ratio of 1.2. Mapletree Industrial Trust, which hosts 85 industrial properties across Singapore, offers a 7.0% distribution yield. Interestingly, the REIT has one of the better records when it comes to stock market gains. It has a total return of 44.3% over the past three years.

The P/B ratio represents a starting point for investors who are looking for REITs that may be undervalued. Valuation, though, has to be complemented by understanding a REIT’s asset quality, the performance of the REIT’s portfolio in the past, and its future prospects, among other important things.

Learn more about investing and get more investing tips and tricks, FREE, by signing up here for The Motley Fool Singapore's weekly investing newsletter, Take Stock Singapore.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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 owns units in Mapletree Logistics Trust.