From the start 2018 till Friday (28 December), the FTSE ST Real Estate Investment Trusts Index has fallen around 9%. Some of the index components, however, have tumbled much more than the index. The steep price falls have made those real estate investment trusts (REITs) more attractive in terms of their valuations than before.
With that, let’s look at three of the cheapest REITs in Singapore currently (data as of 28 December 2018).
OUE Commercial Real Estate Investment Trust (SGX: TS0U) is the first REIT to be featured. The REIT has a portfolio comprising of four commercial properties located in Singapore and Shanghai, China. In Singapore, the REIT’s assets are OUE Bayfront, One Raffles Place (a 67.95% effective interest), and the office components of OUE Downtown.
Revenue for the REIT’s 2018 third-quarter decreased by 4.8% to S$41.2 million while its NPI tumbled 5.1% to S$32.3 million. As a result of a higher number of units outstanding following the rights issue in October 2018, DPU dropped 52.2% to 0.55 Singapore cents. The rights issue was undertaken to finance the acquisition of OUE Downtown’s office components partially.
OUE Commercial REIT’s unit price has fallen more than 20% to S$0.46 since the beginning of 2018. As of Friday’s close, the REIT had a price-to-book (PB) ratio of 0.52 and a distribution yield of 9.7%.
The second REIT on the list is Lippo Malls Indonesia Retail Trust (SGX: D5IU). The REIT owns 23 retail malls and seven retail spaces located within other retail malls in Indonesia.
For its third quarter of 2018, the REIT saw gross revenue rise by 30.7% to S$64.8 million, but net property income (NPI) fell 15% to S$39.5 million. Consequently, distribution per unit (DPU) came down by 43% to 0.49 Singapore cents. Continued weakness in the Indonesian rupiah, higher property operating expenses, and the implementation of a new tax ruling in Indonesia led to the poor showing during the quarter.
Since the start of the year, the REIT’s unit price has plunged by 54% to S$0.183. At that price, the REIT was valued at a PB ratio of 0.66 and had a distribution yield of 13.9%.
Far East Hospitality Trust (SGX: Q5T) is the final REIT on the list. Far East Hospitality Trust owns 13 properties in Singapore, comprising nine hotels and four serviced residences. Some of the hotels in its portfolio include Village Hotel Bugis, Orchard Rendezvous Hotel and The Quincy Hotel.
The REIT’s gross revenue for the 2018 third-quarter improved 11.1% to S$30.5 million while its NPI rose 11.8% to S$27.7 million. Likewise, distribution per stapled security inched up by 1.9% to 1.05 Singapore cents.
The chief executive of the REIT’s manager, Gerald Lee, commented on its latest performance:
“We achieved another quarter of growth for our hospitality portfolio and our distribution income. The improved environment in the hotel sector has enabled our properties to perform better. The portfolio also received a lift from Oasia Hotel Downtown which was acquired earlier this year. We will continue to enhance our properties so as to improve the overall performance.”
Far East Hospitality Trust’s units have declined by around 16% this year to S$0.605 apiece, valuing the REIT at a PB ratio of 0.70 and a distribution yield of 6.6%.
The Foolish takeaway
All three REITs are trading at a PB ratio of below 1 and sport attractive distribution yields of more than 6%. However, the cheap valuation shouldn’t be the only criterion used to determine if the REIT is a “buy”. Investors have to go a few steps further to look at the growth prospects of the REIT and whether the high distribution yields can be sustained.
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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 Sudhan P doesn’t own shares in any companies mentioned.