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Here Are 2 REITs That Are Trading Near 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: Starhill Global Real Estate Investment Trust (SGX: P40U) and Frasers Commercial Trust (SGX: ND8U).

Starhill Global REIT and Frasers Commercial Trust 52-week low table
Source: SGX Stock Facts

Starhill Global REIT focuses on investing in real estate that are used primarily for retail and/or office purposes.

Its portfolio now has 12 mid-to high-end properties in five countries, namely, Singapore, Australia, Malaysia, China, and Japan. The REIT’s properties in Singapore, which consists of Wisma Atria and Ngee Ann City, makes up 68% of its total assets.

Starhill Global REIT recently announced its second quarter results for its fiscal year ending 30 June 2017 (the reporting quarter is the three months ended 31 December 2016). It saw its gross revenue for the quarter decline by 2.8% year-on-year, which led to a 5.4% drop in net property income. As a result, Starhill Global REIT’s distribution per unit (DPU) slipped by 4.5%.

The REIT had suffered disruptions in its revenue due to the repositioning of its mall in China, lower contributions from its Singapore properties, the sale of a Japanese property in January 2016, as well as higher finance expenses.

Looking ahead, Starhill Global REIT sees short-term volatilities, but it is confident of its long-term prospects partly due to a limited supply of prime retail and office space in Orchard Road (Wisma Atria and Ngee Ann City, as some of you may be aware, is situated in the heart of Orchard Road).

Frasers Commercial Trust invests primarily in commercial properties and its current portfolio has six properties in Singapore and Australia. In Singapore, the REIT has China Square Central located at 18, 20 and 22 Cross Street; Alexandra Technopark located at 438A/438B Alexandra Road; and 55 Market Street.

The REIT’s latest results are for the quarter ended 31 December 2016 (the first quarter of its fiscal year ending 30 September 2017) and it was released in late January. In the quarter, Frasers Commercial Trust’s gross revenue inched up by 0.1% compared to a year ago while its distribution per unit (DPU) was unchanged.

In its earnings release, Frasers Commercial Trust mentioned that “market conditions are overall anticipated to remain challenging for some time.”

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.