CapitaLand Commercial Trust (SGX: C61U), or CCT, is one of the largest commercial real estate investment trusts (REITs) in Singapore by market capitalisation.
Institutional investors have been buying CCT’s shares lately (among the top 10 most purchased stocks by institution), with a net purchase of about S$3.9 million (sgx.com). For investors who have been following the REIT, this raises an important question for them: is CCT cheap now? This question is important because if the REIT’s shares are cheap, it might be a good opportunity for these investors to consider investing in the REIT.
To answer this question, we can get some insight by comparing CCT’s current valuations with the market’s valuation. 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 41 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 CCT’s distribution yield is lower than that of the market average, indicating that it’s trading at a higher valuation. Similarly, its high PB ratio means that the REIT is trading at a premium to the market average.
In sum, we can argue that CCT is trading 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. The Motley Fool Singapore has recommended shares of CapitaLand Commercial Trust.