These 2 Billion-Dollar REITs Are Down 20% From Their Peaks

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 relatively low-interest rate environment, REITs, with their high yields, would seem like an attractive avenue for investors to earn income.

However, not every REIT would be a good investment. With around 41 REITs and stapled trusts (trusts that consist of a REIT and a business trust) in our local stock market, it’s important that investors separate the wheat from the chaff. So, where should we start in our hunt for potential investing opportunities among REITs?

One way is to look for beaten-down REITs that might outperform the stock market over the longer term. In this article, I will explore two REITs that fit that description.

Source: SGX StockFacts

The first REIT on the list is CapitaLand Retail China Trust (SGX: AU8U), or CRCT. As a quick introduction, CRCT is a Singapore-based REIT investing in retail assets in China, Hong Kong and Macau.

In the latest earnings update for the period ended 30 June 2018, CRCT reported that revenue declined by 4.6% year-on-year to S$56.3 million while net property income (NPI) reduced by 5.9% year-on-year to S$37.6 million. The lower net property income was due to divestment of CapitaMall Anzhen, with effect from 1 July 2017, and lower revenue from CapitaMall Grand Canyon. This loss off income was partially offset by Rock Square‘s contribution, which was accounted for under the share of results (net of tax) from joint venture. Despite reporting lower NPI, CRCT’s distribution per unit (DPU) grew 0.8% year-on-year to 2.64 cents.

As of 30 June 2018, the REIT’s gearing stood at 32.1% while its committed occupancy rate stood at 97.4%. At the current unit price of S$1.40 (as of the time of writing), CRCT’s units are down 21% from the peak of S$1.77 per unit reached in 2015.

The next REIT is First Real Estate Investment Trust (SGX: AW9U). First REIT is a healthcare-focused REIT with a portfolio of 20 properties (16 in Indonesia, three in Singapore, and one in South Korea). The REIT’s sponsor is Indonesia’s largest listed property company, PT Lippo Karawaci Tbk.

For the quarter ended 30 June 2018, First REIT reported that gross revenue increased by 5.3% while NPI rose by 5.0%,  compared to the same period last year. The better showing was primarily due to contributions from the newly-acquired Siloam Hospitals Buton & Lippo Plaza Buton, and Siloam Hospitals Yogyakarta, as well as increased rental income from existing properties in Singapore and Indonesia. Consequently, DPU came was 2.15 cents, 0.5% higher than the same period last year.

As of 30 June 2018, First REIT’s gearing stood at 34.2%, and it had a full portfolio occupancy. At current price of S$1.18, First REIT’s unit price is down 20% from the peak of S$1.47 reached in 2015.

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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. Motley Fool Singapore has recommendations for CapitaLand Retail China Trust and First Real Estate Investment Trust.