These 2 Billion-Dollar REITs Are Trading Close To Their Respective 52-Week Low Prices

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

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 around 42 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 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: CapitaLand Commercial Trust (SGX: C61U) and SPH REIT (SGX: SK6U).

Source: SGX Stock Facts

CapitaLand Commercial Trust (SGX: C61U), or CCT, is one of the largest commercial REITs in Singapore by market capitalisation. The REIT is sponsored by CapitaLand Limited (SGX: C31).

The REIT’s latest earnings update, released in April, was for the first quarter ended 31 March 2018. During the quarter, CCT delivered a 7.7% year-on-year increase in revenue to S$96.4 million, and this led to a 10.5% climb in net property income (NPI) to S$77.2 million. The REIT’s distribution per unit (DPU) for the quarter, however, declined by 11.7% year-on-year to 2.12 cents. This was mainly due to an increase in the number of units issued.

The chief executive of the REIT’s manager, Kevin Chee, said:

“We are pleased to maintain a high portfolio committed occupancy rate of 97.3% in 1Q 2018. With a focus on achieving a balance between higher rentals and lower vacancy, we will also leverage the momentum of rising office market rents to manage our lease expiries in the upcoming years. CCT [CapitaLand Commercial Trust] has built a portfolio of quality assets in Singapore and is currently the largest commercial landlord in Singapore’s CBD by net lettable area. The timely acquisition of Asia Square Tower 2 has contributed significantly to CCT’s strong performance this quarter and we will continue to market the remaining vacancy to deliver higher income. To continue delivering sustainable distribution growth, CCT will also look at core assets in select global gateway cities across developed markets, in addition to exploring opportunities in Singapore.”

As of 31 March 2018, CCT’s occupancy rate stood at 97.3% while its gearing ratio came in at 37.9%.

Next up is SPH REIT (SGX: SK6U), the owner of two retail malls in Singapore, namely, Paragon and The Clementi Mall. Singapore Press Holdings Limited (SGX: T39) is both the sponsor and main unitholder of SPH REIT.

For the second quarter ended 28 February 2018, SPH REIT announced that gross revenue for the latest quarter slipped 0.8% year-on-year to S$53.6 million while NPI fell 1.1% to S$42.3 million.The year-on-year decline in NPI was due to the impact from Paragon. Depsite the decline in NPI, DPU was flat at 1.40 Singapore cents.

Paragon saw a rental reversion of -7.1% for new and renewed leases for the second quarter. SPH REIT said the lower rental reversion at Paragon was “mainly due to negotiations during the retail sales downturn since 2014”. As at 28 February 2018, the retail REIT clocked in a gearing ratio of 25.4%, unchanged from that on 31 August 2017. The weighted average term to maturity was 2.2 years, and the average cost of debt came in at 2.84% per annum.

The chief executive of the REIT’s manager, Susan Leng, commented on the REIT’s latest performance and its outlook:

“SPH REIT has delivered stable distribution and our well-positioned malls continued their track record of full occupancy. In keeping with our philosophy of treating tenants as business partners, we will work closely with them to ride through both cyclical and structural challenges in the retail environment. It is encouraging that our tenant sales have continued to register growth. The tourist arrivals and spend for 2017 ended on a positive note and we believe Paragon would stand to benefit with this trend. The forecasted GDP growth of “1.5% to 3.5%” bodes well for Singaporeans and The Clementi Mall is well poised in the suburban to continue to serve its immediate catchment. Our focus remains to drive long-term value of our properties and deliver sustainable returns for our unitholders.”

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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. The Motley Fool Singapore has recommendations on Capitaland Commercial Trust