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2 Billion-Dollar REITs That 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) focuses on investing in prime real estate used for retail and office purposes.

As a quick background, the REIT has a focus on investing in prime retail and office properties. Its current portfolio comprises 11 mid to high-end retail properties in five countries (Singapore, Australia, Malaysia, China, and Japan). Singapore makes up 68% of Starhill Global REIT’s total assets, while Australia and Malaysia collectively account for 29%.

In its FY16/17 full year result, Starhil Global reported that its gross revenue declined marginally by 1.5% year-on-year whilst net property income (NPI) dropped by 2% during that period. Distribution per unit (DPU) was down 5% year-on-year as a result of the weaker financial performance.

The weaker performance was due to a weaker performance in Australia and China, offset by growth in Malaysia. On the other hand, occupancy rate of 95.5% in FY16/17 was slightly ahead from FY15/16. Yet, the 95.5% rate is still one of the lowest seen over the past decade.

Presently, the trust is trading at S$0.75. This gives a 6.52% distribution yield and a price to book ratio of 0.82.

The second REIT on our list today is OUE Commercial Real Estate Investment Trust (SGX: TS0U).

OUE Commercial REIT invests primarily in commercial properties, focusing mainly in Singapore and China.

The REIT’s portfolio includes OUE Bayfront, a Grade A office building located at Collyer Quay, One Raffles Place, an integrated commercial development consisting of office towers and a retail mall, and Lippo Plaza, a Grade A commercial building located in the business district of Huangpu, Shanghai.

OUE Commercial REIT recently released its second quarter FY17 result, with revenue coming down 3.2% as compared to FY16 whilst DPU for the period fell 15.4% year-on-year. Average occupancy rate stood at 96.4%, up from 95.8% a quarter ago.

Presently, this REIT is trading at S$0.695. This gives a 7.07% distribution yield and a price to book ratio of 0.81.

Conclusion

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.