One of the more popular types of investments in Singapore is the real estate investment trust. Right now, there are over 30 REITs in the local stock market that invest across a wide variety of real estate sectors. Some of the greatest investors around – good examples are John Neff and Walter Schloss – look at lists of stocks that have fallen hard for potential investing ideas. They believe that some beaten-down stocks may be bargains in relation to their actual economic worth. Nearly once every week, I run a screen to look for companies in Singapore’s market that are…
One of the more popular types of investments in Singapore is the real estate investment trust. Right now, there are over 30 REITs in the local stock market that invest across a wide variety of real estate sectors.
Some of the greatest investors around – good examples are John Neff and Walter Schloss – look at lists of stocks that have fallen hard for potential investing ideas. They believe that some beaten-down stocks may be bargains in relation to their actual economic worth.
Nearly once every week, I run a screen to look for companies in Singapore’s market that are near 52-week lows. In most weeks, REITs will appear on my screen.
So, let’s take a closer look at three REITs I’ve chosen at random from a list of REITs that have unit prices near their respective 52-week lows: Soilbuild Business Space REIT (SGX: SV3U), CapitaLand Mall Trust (SGX: C38U), and CapitaLand Retail China Trust (SGX: AU8U)
Source: SGX Stock Facts
Soilbuild Business Space REIT invests primarily in business spaces and industrial properties in Singapore. As of 30 September 2016, the REIT has 12 properties in its portfolio that are valued at S$1.29 billion in all.
For the quarter ended 30 September 2016, Soilbuild Business Space REIT reported a 3.9% and 5.7% decline in its distributable income and distribution per unit, respectively. The REIT also ended the quarter with a portfolio occupancy rate of 94.8%. Soilbuild Business Space REIT’s occupancy rate for its portfolio has been falling in recent quarters as you can see in the table below:
Source: Soilbuild Business Space REIT earnings release
In its earnings release, Soilbuild Business Space REIT commented that the “rentals of all industrial properties softened by 1.7% in 2Q 2016 over the preceding quarter” due to a slowdown in the manufacturing sector. Meanwhile, “industrial occupancy rates also contracted by 0.7%” in the second quarter of the year.
But, there was still some positivity – the REIT also commented that the “Purchasing Managers’ Index for September 2016 rose to 50.1, registering the highest reading since June 2015.”
The second REIT on the list is CapitaLand Mall Trust, Singapore’s oldest and largest REIT. CapitaLand Mall Trust has a portfolio of 16 shopping malls scattered across Singapore. Some of its malls include Plaza Singapura, Junction 8, and Westgate.
Some of the worries investors have over the REIT could involve the potential impacts to shopping malls from the rise of e-commerce.
During the third quarter of 2016, CapitaLand Mall Trust saw its distribution per unit fall by 6.7% year-on-year to 2.78 cents.
In its earnings release, the REIT mentioned that Singapore’s retail sales index (excluding motor vehicle sales) had “contracted by 3.1% and 6.5% on a year-on-year basis in July and August 2016 respectively.”
But, CapitaLand Mall Trust added that its malls have certain characteristics (such as good connections to public transportation hubs and a large and diversified tenant base) that “will contribute to the stability and sustainability of the malls’ occupancy rates and rental revenues.”
The last REIT on the list is CapitaLand Retail China Trust, which has a focus on shopping malls located in China. It currently has 11 shopping malls that are found in Chinese cities such as Beijing, Chengdu, Shanghai, and more.
In the REIT’s latest earnings release (for the quarter ended 30 September 2016), it reported an 8.5% year-on-year decline in gross revenue to S$50.6 million. Net property income followed suit with a 6.9% fall. The REIT’s distribution per unit (DPU) fell the hardest – it came in at 2.36 cents, 10.6% lower compared to a year ago.
Unfavourable currency fluctuations (the renminbi had lost 8.1% in value compared to the Singapore dollar over the last 12 months) had dinged the REIT’s numbers.
The market environment for the REIT appears to be growing. In its earnings release, CapitaLand Retail China Trust commented that retail sales in China in the first nine months of 2016 had “expanded 10.4% year-on-year to RMB23.8 trillion.” It added that “urban disposable income and expenditure per capita grew 5.7% and 5.3% year-on-year respectively.”
A Foolish summary
Though the REITs mentioned above are trading near their respective 52-week lows, there is no guarantee that their unit prices will not fall further.
What is important is the business performance of the REITs going forward. Some important areas for investors to look at with the REITs before coming to an investment decision include their property profiles, debt profiles, and quality of management.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of CapitaLand Mall Trust. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.