Is BHG Retail REIT Cheap?

BHG Retail REIT (SGX: BMGU) is a pure-play China retail REIT listed in Singapore. It has a property portfolio that consists of five retail properties located in five different cities in China.

Recently, I wrote two articles assessing the robustness of the trust’s property portfolio and its debt profile. In this article, I will look at three key valuation metrics to assess if the REIT is cheap or expensive.


The funds from operation (FFO) is a metric that is used to assess the operational profitability of a REIT.

In the first quarter of 2018, the REIT generated an annualised FFO of S$27.6 million. At the current price, the trust has a market capitalisation of S$358.8 million. By dividing the FFO by the market capitalisation of the REIT, we can see that the trust is trading at 13 times its FFO.

Price-to-book ratio

Another useful way to assess the price of a REIT is by comparing its price with its net assets or book value. As of 31 March 2018, BHG Retail REIT had a net asset value per unit of S$0.84.

At the time of writing, units of the REIT exchanged hands at S$0.72 per unit. This translates to a price-to-book ratio of 0.85.

Distribution yield

REIT investors are usually concerned about the cash flow that their investments can generate. Therefore, the distribution yield and the sustainability of the dividend is a key consideration.

Based on its 2018 first quarter distribution of 1.39 Singapore cents per unit, BHG Retail REIT had an annualised distribution per unit of 5.56 Singapore cents. At its current price, this equates to an annualised distribution yield of 7.7%.

The Foolish bottom line

From the above, we can see that BHG trades at a reasonable FFO-to-price ratio, a discount to its book value and has an attractive distribution yield.

However, as important as valuations are in choosing an investment, it is but one aspect of investing. Investors should also take note of how sustainable the distributions are, whether the REIT has the propensity for growth and how capable the management team is. Only by looking at all the aspects of a business can we make an informed decision on our investments.

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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 Jeremy Chia doesn’t own shares in any companies mentioned.