These 2 Billion-Dollar REITs Are Near 52-Week Lows Right Now

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 CapitaLand Mall Trust (SGX: C38U).

Source: SGX Stock Facts

Starhill Global REIT focuses on investing in properties that are used for retail and/or office purposes. Its portfolio currently comprises of 11 properties in Singapore, Australia, Malaysia, China, and Japan that are collectively valued at S$3.1 billion. Just two days ago, the REIT had sold one of its Japanese properties for around S$5.1 million.

The REIT’s largest market is Singapore (accounting for nearly 70% of total assets), followed by Australia and Malaysia.

In late April, Starhill Global REIT announced its third quarter results for its fiscal year ending 30 June 2017. During the reporting quarter, the REIT experienced a 0.9% year-on-year decline in net property income, and a 6.3% fall in distribution per unit. The REIT had seen lower contributions from a number of its properties.

In its latest earnings release, Starhill Global REIT said that retail sentiment in Singapore “remains soft amid cautious consumer spending.”

CapitaLand Mall Trust is Singapore’s oldest REIT. It focuses on owning retail properties in Singapore. Right now, its portfolio consists of 16 malls which are located in the suburban areas or downtown core of Singapore.

The REIT’s latest results were released in late April and were for the first quarter of 2017. During the quarter, CapitaLand Mall Trust saw its net property income fall by 6.1%, but its distribution per unit remained unchanged. The lower net property income can be traced to the July 2016 closure of Funan, which is currently undergoing redevelopment.

There are challenges in the Singapore retail market, as StarHill Global REIT had shared, but CapitaLand Mall Trust thinks that the characteristics of its portfolio (such as having malls that are “well-connected to public transportation hubs” and that are “strategically located either in areas with large population catchments or within Singapore’s popular shopping and tourist destinations”) will help it achieve stable and sustainable occupancy rates and rental revenues.

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. The Motley Fool Singapore has recommended shares of CapitaLand Mall Trust. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.