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Institutional Investors Have Been Buying This REIT’s Shares Recently. Should You Buy Too?

SPH REIT (SGX: SK6U) is an owner of two retail malls in Singapore, namely Paragon and Clementi Mall. It also owns a leasehold interest in The Rail Mall. In Australia, SPH REIT owns an 85% stake in Figtree Grove Shopping Centre. Newspaper publisher Singapore Press Holdings Limited (SGX: T39) is the sponsor, manager, and a large unitholder of SPH REIT.

Institutional investors have been buying SPH REIT’s shares lately, with a net purchase of about S$9 million. This raises a question: Is SPH REIT cheap now? This question is important because if the REIT’s shares are cheap, it might be a good opportunity for investors to consider the REIT.

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Unfortunately, there is no easy answer. However, we can still get some insight by comparing SPH REIT’s current valuation with the market’s valuation. The two valuation metrics I will focus on are the price-to-book (PB) ratio and distribution yield.

I will be using the average PB ratio and distribution yield for the 40 REITs that are listed on Singapore’s stock market. With that, let’s look at the comparison below:

Source: Yahoo Finance, OCBC Weekly S-REITs Tracker

From the above, we can see that SPH REIT’s distribution yield is lower than that of the market average, indicating that it’s trading at a higher valuation. Similarly, its PB ratio is higher than that of the market average.

Conclusion

In sum, we can argue that SPH REIT is trading slightly on the higher end of the valuation spectrum given its low distribution yield and high PB ratio when compared to the market average.

Still, investors might want to learn more about the fundamentals of the REIT. After all, such a valuation premium might be reasonable if it has better prospects than its peers.

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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.