Suntec Real Estate Investment Trust (SGX: T82U), or Suntec REIT, is one of the largest REITs in Singapore and currently has interests in retail malls and offices in Singapore and Australia. Its portfolio includes Suntec City, a one-third interest in One Raffles Quay, a commercial building in Sydney and a 50% stake in Southgate Complex in Melbourne, to name just a few.
Institutional investors have been buying Suntec REIT’s shares lately (among the top 10 most purchased stocks by institutions), with a net purchase of about S$9.6 million. For investors who have been following the REIT, this raises an important question for them: Is Suntec REIT cheap now? If the REIT’s shares are cheap, it might be a good opportunity for these investors to consider investing in the REIT themselves.
To answer the question for the above question, we can get some insight by comparing Suntec REIT’s current valuation metrics with those of the broader market. The two valuation metrics I will focus on are the price-to-book (PB) ratio and distribution yield. The idea here is that if the REIT is trading at valuation that’s cheaper than the market average, it might be a good time to buy.
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 Suntec REIT’s distribution yield is lower than that of the market average, indicating that it’s trading at a higher valuation. Yet, its low PB ratio means that the REIT is trading at a discount.
In sum, we can argue that Suntec REIT is trading at a reasonable valuation as compared to the market average whereby its low distribution yield is offset by its low PB ratio.
For investors who are seeking higher-yielding REITs, Suntec REIT might not appear to be very appealing at the moment. Last but not least though, investors might want to consider the REIT’s future prospects in conjunction with its valuation to get a more balanced decision on whether to invest.
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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.