When an investor hunts around for “cheap” stocks, they are actually looking for cheap valuations and not looking at the absolute share price. Some methods of valuation which I discussed before include the price-earnings (PE) ratio and the price-to-book (PB) ratio. Each valuation method is suitable for certain types of companies or industries.
I decided to do a scan for affordable real estate investment trusts (REITs) as these are income-generating vehicles that are perfect for income-minded investors. Using the SGX Stock Screener, I picked out the following three REITs, ranked using P/B ratios (as REITs own a portfolio of properties, book value is thus an accurate measure of whether a REIT is cheap, or not).
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REIT 1 – Dasin Retail Trust
Dasin Retail Trust (SGX: CEDU), or Dasin for short, is a China retail property trust offering exposure to income-generating real estate in Greater China. Its portfolio consists of four retail malls located in Zhongshan City in China. In its FY 2018 earnings report, the REIT reported a 23.6% year-on-year increase in gross revenue and a 17.8% year-on-year increase in amount available for distribution. The REIT also boasts high portfolio occupancy of 99.1% for its four malls.
The REIT is trading at a PB of 0.57x and a distribution yield of 8.3% at its last traded unit price of S$0.87. Investors should take note, though, of the three key risks for Dasin before they decide to invest.
REIT 2 – OUE Commercial REIT
OUE Commercial REIT (SGX: TS0U), or OUECR for short, is a commercial REIT which owns office properties in Singapore and China. Its portfolio consists of OUE Bayfront, One Raffles Place and OUE Downtown Office in Singapore, and Lippo Plaza in Shanghai, China. OUECR’s sponsor is OUE Limited (SGX: LJ3), a diversified real estate owner, developer and operator with real estate portfolios in Asia and the US.
Note that OUECR had just concluded an 83-for-100 rights issue back in September 2018 to acquire office components of OUE Downtown for S$908 million. The issue was done at S$0.456, a steep discount of 31% to its (then) last traded price of S$0.66 apiece. Also, as recently as last month, the REIT proposed a merger between itself and OUE Hospitality Trust to form a combined diversified REIT with total assets of around S$6.8 billion.
OUECR is currently trading at a PB of 0.63x, with a dividend yield of 5.9% at its last traded unit price of S$0.50.
REIT 3 – Sabana REIT
Sabana REIT (SGX: M1GU) is an industrial REIT that owns a portfolio of 18 properties in Singapore in the high-tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial sectors. The REIT invests in accordance with Shari’ah investment principles and has a total portfolio value worth S$1 billion.
For the REIT’s first-quarter 2019 earnings, it reported an 11.8% fall in gross revenue and a 14.8% decline in distribution per unit to 0.75 Singapore cents. This was due to a “challenging market”, and the REIT expects further negative rental reversion to occur due to continued oversupply conditions for industrial property in Singapore.
The REIT is trading at a PB of 0.76x, with a distribution yield of 6.3% at its last traded unit price of S$0.41.
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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 Royston Yang does not own shares in any of the companies mentioned.