These 2 REITs Are Trading Near Their 52-Week Lows

One of the more popular types of investments in Singapore is the real estate investment trust.

Due to the structure of REITs, they are required to pay out most of their taxable income to their unitholders; this results in them offering high distribution yields for investors. Moreover, since we’re currently in a low interest rate environment, REITs, with their high yields, would seem like an attractive avenue for investors to earn income.

But, not every REIT would be a good investment. And with nearly 40 REITs and stapled trusts (trusts that consist of a REIT and a business trust) in our local stock market, it’s important that investors attempt to separate the wheat from the chaff. So, where should we start in our hunt for potential investing opportunities amongst REITs?

In my case, I would start by looking at REITs that are trading at prices close to a 12-month, or 52-week, low. From such a list, I would then carry on further research to understand each REIT’s property profile, financials, management-calibre, and future prospects.

Let’s take a closer look at two REITs that currently have unit prices that are near their respective 52-week lows: Cache Logistics Trust (SGX: K2LU) and Ascendas Real Estate Investment Trust (SGX: A17U).

Cache Logistics Trust and Ascendas Real Estate Investment Trust 52 week low table
Source: SGX Stock Facts

Cache Logistics Trust is a real estate investment trust that focuses on logistics properties. It currently has 19 logistics warehouse properties in its portfolio which are located in established logistics clusters in Singapore, Australia, and China.

The REIT announced its 2016 full year results in late January. Despite enjoying a 24% increase in gross revenue during the year, its  distribution per unit (DPU) fell by 9.1% instead, due to the absence of a divestment gain and an increase in the unit count.

In its earnings release, Cache Logistics Trust commented that its market is already in an oversupply situation, yet there is even more warehouse supply coming in Singapore. The manager of Cache Logistics Trust is looking to expand the REIT’s presence in Australia; right now, the REIT owns six freehold warehouses in the country.

The second REIT on our list today is Ascendas Real Estate Investment Trust.

As a quick introduction, the REIT owns properties that are used for either commercial or industrial purposes, or both. Ascendas REIT currently has 102 properties in Singapore and 28 properties in Australia.

In late January, Ascendas REIT released its third quarter results for its fiscal year ending 31 March 2017 (it was for the quarter ended 31 December 2016). The REIT’s gross revenue for the quarter was up 7.6% year-on-year while its DPU had inched up by 1.2%.

Commenting on its future in the earnings release, Ascendas REIT said that the “uncertain global economic outlook will have certain impact” on its business. Regarding the Singapore industrial property market, the REIT said that “new supply of about 2.2 million sm of industrial space in 2017 will put further pressure on occupancy and rental rates.”

Ascendas REIT is currently the largest REIT in Singapore based on its market capitalisation of S$7.25 billion. This is slightly ahead of CapitaLand Mall Trust’s (SGX: C38U) market cap of S$ 6.91 billion.

Though the REITs mentioned above are trading near their respective 52-week lows, investors should be reminded that a low price alone is not enough to justify a buy. It is important that investors research a REIT’s future income prospects.

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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.