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3 Billion Dollar REITs That Are Trading Close To Their 52-Week Lows

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.

But, not every REIT would be a good investment. And 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 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 three REITs that currently have unit prices that are near their respective 52-week lows: Parkway Life REIT (SGX: C2PU), SPH REIT (SGX: SK6U), and CapitaLand Retail China Trust (SGX: AU8U).

Source: SGX StockFacts

The first REIT here is Parkway Life REIT. As a quick background, Parkway Life REIT is one of the largest listed REITs in Asia by asset size.

For the quarter ended 30 September 2018, Parkway Life REIT reported that gross revenue grew 2.5% to S$28.4 million while net property income (NPI) improved by 2.5% to S$26.5 million as compared to the same period last year. The higher NPI was due to contribution from one nursing rehabilitation facility acquired in February 2018 and higher rent from the Singapore properties. Yet, distribution per unit (DPU) declined by 4.1% to 3.23 cents. Excluding one off distribution of divestment gains last year, DPU would have increased by 2.7%.

As of 30 September 2018, the REIT’s gearing stood at 37.7% and its committed occupancy rate was 100%.

Yong Yean Chau, chief executive of the REIT’s manager, commented:

“We remain committed in preserving the resiliency of our earnings within this environment of rising interest rates and market uncertainties. In the past quarter, we have successfully refinanced all loans due in 2019 as part of our liquidity risk management strategy and continued to manage our exposure to interest rate and foreign currency risks. This has been done to enhance the defensiveness of PLife REIT’s balance sheet, to safeguard the stability and resiliency of our distributions to Unitholders.”

The next REIT on the list is SPH REIT. As a quick introduction, SPH REIT is an owner of two retail malls in Singapore, namely, Paragon and The Clementi Mall. Newspaper publisher Singapore Press Holdings Limited (SGX: T39) is the sponsor, manager, and a large unitholder of SPH REIT.

For the quarter ended 31 August 2018, SPH REIT reported that gross revenue grew marginally by 0.2% year-on-year to S$53.0 million while NPI fell by 1.9% to S$41.0 million. DPU was up by 0.7% as compared to a year ago to 1.43 cents. On 28 June 2018, SPH REIT completed the acquisition of The Rail Mall for around S$63.2 million.

As of 31 August 2018, the REIT’s gearing stood at 26.3%, which is a safe distance from the regulatory ceiling of 45%.

Susan Leng, chief executive of the SPH REIT’s manager, said:

“SPH REIT has delivered yet another year of consistent returns to our unitholders and our well-positioned assets continued its track record of close to full occupancy. The resilient performance for five years since listing in 2013 amid retail sales downturn, is a testament to our long-standing philosophy of partnership with our tenants for mutual success. We are pleased that our tenants have registered higher sales and lower occupancy cost.”

The last REIT that we will explore here is CapitaLand Retail China Trust, or CRCT. As a quick introduction, CRCT is a Singapore-based REIT investing in retail real estate in China.

For the quarter ended 30 September 2018, CRCT reported that gross revenue declined 1.1% to S$55.4 million while NPI increased by 2.2% to S$36.7 million. The higher NPI was due to lower property expenses. Similarly, DPU grew 1.7% year-on-year to 2.41 cents. As of 30 September 2018, the REIT’s gearing came in at 35.9% while its committed occupancy rate stood at 97.7%.

Tan Tze Wooi, chief executive of CRCT’s manager, commented in the earnings update:

“CRCT’s growth in 3Q 2018 extends the positive momentum from our portfolio reconstitution. Portfolio occupancy as at 30 September 2018 was a healthy 97.7% and rental reversion for the quarter was a robust 12.1%. Our active asset management strategy with a tailored approach for each mall is progressing well. Rock Square registered a strong positive rental reversion above 20% for the third consecutive quarter by bringing in 25 prominent international and domestic brands, many of which are new-to-market in Haizhu District. To differentiate CapitaMall Qibao’s offerings, we increased its exposure to the resilient learning and education sector by more than three times over the last five years. We also expanded the rooftop playground to host more interactive activities that are popular with children, further enhancing CapitaMall Qibao’s attractiveness to young families.”

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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 for Parkway Life REIT and CapitaLand Retail China Trust.