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.
In this article, I will look at two Singapore REITs that have seen the highest net purchase, in dollar value, by institutional investors for the week ended 28 June 2019. They are Mapletree Industrial Trust (SGX: ME8U) and Frasers Commercial Trust (SGX: ND8U).
Source: Singapore Exchange; SGX Stock Facts
Mapletree Industrial Trust
The first REIT that saw its shares bought by institutional investors is Mapletree Industrial Trust, or MIT. As a quick introduction, MIT is one of the biggest industrial REITs listed in Singapore. It has 87 industrial properties and 14 data centres in the US (through its 40% joint venture with parent Mapletree Investments Pte Ltd).
There are many great reasons for institutional investors to buy MIT’s stock. To start with, MIT began the year 2019 with solid performance. For the quarter ended 31 March 2019, it reported that gross revenue was up 5.6% year-on-year to S$98.8 million. Similarly, distribution per unit (DPU) grew by 0.3% year-on-year to 3.08 cents.
Furthermore, my colleague Royston Yang gave a good overview of why he thinks MIT is a great investment in his article here. As a quick summary, he thinks that MIT’s strong track record of acquisitions, as well as its overall debt profile, position the REIT well for future growth.
One downside, however, is that the REIT is not trading at a bargain level right now, with a distribution yield of 5.4%. Comparatively, the average yield for the 41 REITs in Singapore is about 6.3%.
Frasers Commercial Trust
The next REIT that saw its shares bought by institutions recently is Frasers Commercial Trust, or FCOT. As a quick introduction, FCOT is a REIT that focuses primarily on commercial properties. It has ownership stakes in six commercial properties located in Singapore, Australia, and the UK.
Unlike MIT, FCOT delivered a weaker earnings update recently. In the quarter ended 31 March 2019, FCOT reported that gross revenue decreased by 3.6% year-on-year to S$30.4 million, while net property income followed suit by falling 4.9% to S$20.1 million.
The lower revenue and property income were on the back of lower occupancy at Alexandra Technopark, divestment of 55 Market Street, and a weaker Australian Dollar. Yet, the REIT’s DPU remained stable at 2.4 cents.
On a positive note, FCOT’s gearing stood at 29.1% (as of 31 March 2019) leaving it ample debt headroom before reaching the 45% regulatory limit. This means the REIT can expand its asset base by issuing debt which is non-dilutive to equity investors. Also, the REIT’s low occupancy rate of 78.8% means that any improvement in occupancy rates will improve its bottom-line. Similar to MIT, FCOT is trading at a below market average distribution yield of 5.7%. Thus, investors will need to have good reasons to invest in the REIT at its current valuation.
Looking at what institutional investors are doing could be a useful tool in your toolkit when sourcing for 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.
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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 Mapletree Industrial Trust.