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Are Singapore’s Blue-Chip REITs Undervalued?

The Straits Times Index (SGX: ^STI) is in correction mode. As of yesterday’s close, it has tumbled by 15.2%, or around 550 points, since its peak in May this year.

Even though the broad market has fallen, the three real estate investment trusts (REITs)Ascendas Real Estate Investment Trust (SGX: A17U), CapitaLand Commercial Trust (SGX: C61U) and CapitaLand Mall Trust (SGX: C38U) – that call the Straits Times Index their home, have been somewhat resilient. Ascendas REIT and CapitaLand Commercial Trust have declined by less than 7% while CapitaLand Mall Trust has risen by around 4%.

Given the background above, are there still opportunities with those REITs for income-hungry investors? Let’s find out by looking at the valuations of the trio.

Valuation data

The following shows the valuation of the REITs versus that of the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks the fundamentals of the Straits Times Index:Source: S&P Global Market Intelligence; SPDR STI ETF website; author’s calculation (data as of 19 November 2018)

CapitaLand Commercial Trust has the lowest PB ratio among the three REITs. Its PB ratio is also lower than that of the market. However, its distribution yield is not that enticing, given Ascendas REIT is yielding 6.2%.

CapitaLand Mall Trust sports a PB ratio that is in line with the SPDR STI ETF’s, despite its units performing relatively well in recent history.

The retail REIT has a distribution yield of 5.2%, which is higher than the market’s 3.6%. The REIT’s distribution per unit (DPU) also rose 5% in its 2018 third-quarter. For the first nine months of 2018, its DPU increased by 3%. The excellent showing came despite soft market conditions and Funan being shuttered for redevelopment.

The Foolish takeaway

None of the REITs appears like a screaming buy to me. Having said that, I’m most optimistic about CapitaLand Mall Trust’s future given the tailwinds it has with Funan, which is set to be Singapore’s first online-and-offline shopping mall.

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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 units of Ascendas Real Estate Investment Trust, CapitaLand Commercial Trust and CapitaLand Mall Trust. Motley Fool Singapore contributor Sudhan P owns units in CapitaLand Commercial Trust and CapitaLand Mall Trust.