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The 6 Billion-Dollar REITs in Singapore’s Stock Market With The Lowest Valuation: No.4 to No.6

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 sixth to the fourth. For third to the first, you can check out here.

The billion-dollar REIT with the sixth lowest PB ratio

The sixth REIT on my list is Suntec Real Estate Investment Trust (SGX: T82U). It has a price-to-book of 0.789.

Suntec REIT focuses on both commercial as well as retail properties. In Singapore, it has stakes (either full or partial) in:

  1. The retail portion of Suntec City;
  2. the office units in Suntec Towers One, Two, Three, Four, and Five;
  3. Suntec Singapore Convention & Exhibition Centre;
  4. One Raffles quay;
  5. Marina Bay Financial Centre Towers 1 and 2;
  6. Marina Bay Link Mall; and
  7. Park Mall

The REIT also has investments in Australia and they are:

  1. A commercial building at 177 Pacific Highway in North Sydney; and
  2. Southgate Complex in Melborune

Suntec REIT’s latest earnings, for the third quarter of 2016, was released in late October. It saw low single-digit year-on-year declines in gross revenue and net property income for the quarter, but still enjoyed a 0.5% increase in distribution per unit to 2.522 Singapore cents. The REIT’s book value per unit also managed to step up by 1.7% year-on-year to S$2.128.

In its earnings release, Suntec REIT commented that the performance of its Singapore office portfolio is expected to remain stable. As for the retail environment here, Suntec REIT mentioned that the sector “continued to face challenges in the third quarter of 2016.”

The billion-dollar REIT with the fifth lowest PB ratio

In fifth spot is the dual-listed Fortune Real Estate Investment Trust (SGX: F25U). The REIT, which is listed in Hong Kong as well, has a PB ratio of 0.755.

Fortune REIT has a portfolio comprising 17 private housing estate retail malls that are all located in Hong Kong. These malls have a collective retail area of 3.18 million squre feet. Some of its retail properties are Fortune City One, Caribbean Square, Jubilee Square, and Fortune Metropolis.

In Fortune REIT’s latest earnings release (for the six months ended 30 June 2016), it reported mid-single digit year-on-year growth. Revenue had stepped up by 6.1% to HK$979.1 million, net property income had climbed 7.9% to HK$705.9 million, income available for distribution was 6.7% higher at HK$470 million, and the distribution per unit had increased by 6.0% to HK$0.2478.

Although the REIT managed to grow, it did warn in the earnings release that Hong Kong’s economy had “slowed further in the first quarter of 2016, growing by 0.8% over a year earlier.”

The REIT also added that private consumption in Hong Kong had “slowed visibly from the preceding quarter, growing only mildly by 1.1% year-on-year in the first quarter of 2016.” Furthermore, “the value of total retail sales in Hong Kong registered a decrease of 10.8% year-on-year.”

But, Fortune REIT also highlighted the fact that its malls are focused on “non-discretionary local consumption.” That has played a role in enabling the REIT to “achieve sound financial performance and deliver steady returns through different economic cycles.”

The billion-dollar REIT with the fourth lowest PB ratio

Coming in at fourth place is Ascott Residence Trust (SGX: A68U), with a price to book ratio of 0.751.

As its name might suggest, Ascott Residence Trust has a focus on real estate that serve residential purposes. The REIT’s portfolio currently consists of 90 properties in 14 different countries in the Americas, Asia Pacifc, and Europe. These properties have 11,619 units in total. Ascott Residence Trust has total assets of S$4.9 billion at the moment.

One other thing worth knowing about the REIT is that it is managed by CapitaLand Limited (SGX: C31), one of the largest real estate companies in Singapore. CapitaLand is also a major unitholder in Ascott Residence Trust with a total stake of over 46% as of 1 March 2016.

During its latest reporting quarter (the three months ended 30 September 2016), the trust’s revenue increased by 9%. Meanwhile, its distribution per unit (DPU) had climbed by 9.3% from 2.15 cents in the third quarter of 2015 to 2.35 cents.

Ascott Residence Trust also managed to enjoy a revenue per available unit (RevPAU) of S$144 per day, up 2% from a year ago. The average length of stay in the REIT’s properties had also increased from 3.5 months to 4 months over the same period.

Regarding its outlook, the trust expects demand for its properties to be resilient despite a weak global growth outlook.

I had previously shared the link for the article on the third to first 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.