There are many ways to find investment ideas. Some useful ways are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue.
Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they are doing as a way to generate ideas.
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In this article, I will look at two Singapore REITs that have seen the highest net purchases in dollar value by institutional investors for the week ended 7 June 2019. They are CapitaLand Mall Trust (SGX: C38U) and CapitaLand Commercial Trust (SGX: C61U).
Source: Singapore Exchange; SGX Stock Facts
Cashing in on shopper traffic
The first REIT that saw its shares bought by institutional investors is CapitaLand Mall Trust, or CMT. As a quick introduction, CMT currently has 15 properties which are located in the suburban areas and downtown core of Singapore. Examples of its properties includes Tampines Mall, Junction 8, Funan, IMM Building, Plaza Singapura, Bugis Junction and others.
There are many valid reasons for institutional investors to buy CMT’s stock. To start with, CMT began 2019 on a solid footing. For the quarter ended 31 March 2019, it reported that gross revenue was up 10.0% year-on-year to S$192.7 million. Similarly, distribution per unit (DPU) grew 3.6% year-on-year to 2.88 cents.
Furthermore, there are good reasons to believe that the REIT has room for growth going forward. My colleague, Jeremy Chia, recently wrote a great summary of CMT’s growth prospects. As a quick summary, he believes that CMT can grow its business through positive rental reversion, higher shopper traffic, as well as the contributions from Funan and Westgate.
One downside, however, is that the REIT is trading at a low yield of 4.5%. Comparatively, the average yield for the 40 REITs in Singapore is about 6.6%. Thus, investors should pay attention to its valuation when researching CMT.
Demand for office space
The next REIT that saw its shares bought by institutions recently is CapitaLand Commercial Trust, or CCT. As a quick introduction, CCT is one of the largest commercial REITs in Singapore by market capitalisation.
Similar to CMT, CCT delivered a solid earnings update recently. In the quarter ended 31 March 2019, CCT reported that gross revenue grew 3.5% year-on-year to S$99.8 million while net property income (NPI) improved by 3.4%, as compared to the same period last year, to S$79.8 million. The higher NPI was due to a new acquisition, as well as higher occupancy at one of the existing properties. Similarly, its DPU was up by 3.8% year-on-year to 2.20 cents.
Mr. Kevin Chee, Chief Executive Officer of the Manager, is pleased with the REIT’s performance. Here’s what he said:
“We are pleased to report that CCT achieved a DPU of 2.20 cents in 1Q 2019 and maintained a strong portfolio occupancy rate of 99.1% as at 31 March 2019. The Trust delivered a strong set of results from its strategic portfolio reconstitution achieved by the acquisition of a 94.9% stake in Gallileo and the divestment of Twenty Anson, which mitigated the flow through of negative rental reversions from leases committed last year. This resilient performance was further underpinned by CCT’s proactive asset and capital management.”
Despite its strong set of performance, CCT is trading at an even lower distribution yield of 4.2% (as compared to CMT). On the one hand, its strong financials and high occupancy rate of 99.1% are some desirable qualities that investors like. Yet investors must consider whether they want to pay up for such attributes.
Looking at what institutional investors are doing could be a useful tool in your approach to sourcing investment ideas. But do note that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it should be viewed only as a useful starting point for further research before investing.
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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. Motley Fool Singapore has recommended the shares of CapitaLand Commercial Trust and Capitaland Mall Trust.