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The 6 Billion-Dollar REITs in Singapore’s Stock Market With The Lowest Valuation: No.1 to No.3

There are over 30 real estate investment trusts (REITs) in Singapore’s stock market. And, it appears that investors are not showing them much love at the moment given that around half of the REITs were trading at prices within 10% of their respective 52-week lows on Sunday (8 January 2017).

Challenges that REITs in general are facing are well-known. For instance, there’s the slower economic growth in Singapore; the possibility of higher interest rates in the future; and issues of oversupply in certain property sectors.

But, these challenges have also managed to bring something positive to investors: There are many REITs now with price-to-book (PB) ratios that are low when compared to where the numbers have been over the past five years.

Now, a low valuation on its own is not a sufficient reason to justify an investment into a REIT. Cheap rubbish is still rubbish. That being said, a pool of REITs with low PB ratios can still be a good place to hunt for potential investment ideas that are worth a deeper study.

So, I decided to use SGX Stockfacts and look at all the REITs in Singapore’s market with market capitalisations of over S$1 billion and find the six with the lowest PB ratios (all valuation data is as of 8 January 2017, unless otherwise stated). In this article, I’d be exploring the first to the third. For fourth to the sixth, you can check out here.

The billion-dollar REIT with the third lowest PB ratio

Sitting in third spot is Frasers Hospitality Trust (SGX: ACV). It is technically not a REIT as it is a stapled trust that consists of a business trust and a REIT. But, let’s not split hairs here!

Frasers Hospitality Trust, which has a PB ratio of 0.726 and a distribution yield of 8.2%, has a portfolio that consists of 15 properties. These properties are located across nine cities in Asia, Australia, and Europe and have a total of 3,914 rooms, of which 3,072 are hotel rooms and 842 are serviced residential units.

The trust’s latest results were for the year ended 30 September 2016 (FY2016). The trust saw an increase in gross revenue, net property income, and distributable income of 17.1%, 20.6%, and 10%, respectively, for the year. But, the trust’s distribution per stapled security had declined by 10.1% to 5.23 cents due to an expansion in its unit count stemming from a recent rights issue.

In its earnings release, Frasers Hospitality Trust mentioned that “hotels in Sydney have maintained high occupancy with demand expected to stay strong in 2H2016, buoyed by the city’s extensive events calendar, and strong corporate and leisure demand.”

As for Singapore, the trust said that “the weak global economic outlook, moderating growth in China, increasing regional competition and supply of new rooms will continue to weigh on the hospitality sector.”

Singapore and Australia are two of the trust’s largest contributors of gross revenue and net property income; the two countries collectively accounted for 56% and 57% of Frasers Hospitality Trust’s gross revenue and net property income in FY2016.

The billion-dollar REIT with the second lowest PB ratio

The “runner-up” that I have is Keppel REIT (SGX: K71U), with its PB ratio of 0.714. Its portfolio currently consists of eight office assets located in Singapore (four) and Australia (four).

The third quarter of 2016 has not been a good time for Keppel REIT (it’s the latest reporting quarter for the REIT). In that period, Keppel REIT saw its gross rent fall by 6.5% year-on-year to S37.8 million. This pressured the bottom-line, as the REIT’s income available for distribution slipped by 3.6% to S$52.45 million. The distribution per unit followed suit, falling 5.9% to 1.60 cents.

The majority of Keppel REIT’s asset value resides in its Singapore properties. In its latest earnings release, Keppel REIT commented that “new office supply over the next one to two years, coupled with slower economic growth, will… continue to pose challenges for the Singapore office market.”

The billion-dollar REIT with the lowest PB ratio

And finally, we’re at the billion-dollar REIT with the lowest PB ratio: Far East Hospitality Trust (SGX: Q5T), or FEHT for short. It has a PB ratio of 0.646.

It is similar to Frasers Hospitality Trust in the sense that it is also a stapled trust that comprises a business trust and a REIT. FEHT’s portfolio currently has 12 properties, consisting of eight hotels and four serviced residences. Examples of hotels under the trust are The Elizabeth Hotel, Oasia Hotel Novena, and The Quincy Hotel.

The trust’s 12 properties are in Singapore and are located within close proximity to business districts, leisure attractions, MICE (meetings, incentives, conventions, and exhibitions) facilities, and healthcare facilities.

far-east-hospitality-trust-income-table
Source: Far East Hospitality Trust earnings presentation

FEHT’s latest earnings are for the third quarter of 2016. Its low PB ratio may not be unwarranted, given that it has seen declines in important financial metrics – such as the gross revenue, net property income, and distribution per stapled security – in both the quarter as well as the first nine months of 2016. You can see this in the table above.

Looking ahead, FEHT commented in its earnings release that “the hospitality sector is expected to remain competitive.”

I had previously shared the link for the article on the fourth to sixth billion-dollar REITs with the lowest PB ratios. But, here it is again for convenience.

A Foolish final thought

As I mentioned earlier, “a low valuation on its own is not a sufficient reason to justify an investment into a REIT. Cheap rubbish is still rubbish.” This is worth keeping in mind when studying the six billion-dollar REITs in Singapore’s market with the lowest PB ratios. Deeper research beyond looking at their PB ratios is needed before any investment decision can be reached.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.