Analysts have recently questioned whether Singapore REITs are getting too expensive. The FTSE Straits Times Real Estate Investment Trust Index has surged 18% so far this year, closing at its highest since 2007. The commonly-cited REIT barometer traded at a 20% premium to book value, the most in over six years.
In addition, the REIT index’s 12-month forward yield is 5.13%, well below the forward yield of 6.22% at the start of the year.
Given the overall REIT market’s high valuation, I did a quick screen to find REITs that despite current market conditions could still be worth a look.
EC World Real Estate Investment Trust (SGX: BWCU)
The pure-play China REIT has seen its unit price increased by around 8.7% year-to-date. However, the price increase still lags behind the REIT index’s 18% year-to-date spike.
Investors could still be cautious about the prospects of China’s economy, amidst the ongoing trade turmoil with the United States. However, I am confident about EC World REIT’s long-term prospects. The REIT has built-in rental escalations with most of its key tenants, which should provide it with visible rental income growth. On top of that, it recently announced an acquisition that is expected to be yield-accretive.
EC World REIT’s port logistic assets are also inland ports that cater to tenants that handle domestic businesses that have limited exposure to international trade. As such, the ongoing trade conflict will have minimal impact on its tenants’ business and their ability to pay rent.
At the time of writing, EC World REIT trades at S$0.75 per unit, which translates to an annualised distribution yield of 8.0%.
First Real Estate Investment Trust (SGX: AW9U)
While the REIT index has risen by double-digits this year, First REIT has a year-to-date appreciation of just 9.1%.
Last year, First REIT saw a steep sell-off after its sponsor and main tenant, Lippo Karawaci, suffered a credit down-grade raising fears of liquidity concerns and its ability to renew rental leases. First REIT’s tepid unit price performance could be a sign that investors are still concerned about its reliance on Lippo Karawaci.
However, there was some positive news in March this year as Lippo Karawaci secured a US$1.01 billion (S$1.37 billion) funding through a rights issue and asset divestment. The funding comprised US$730 million from the rights issue underwritten by the Riady family and US$280 million from asset divestments. The injection of cash should be good news to First REIT, which relies on Lippo Karawaci as its key tenant.
At its current price, First REIT has an attractive annualised distribution yield of 8.1%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommendations on First Real Estate Investment Trust. Motley Fool Singapore contributor Jeremy Chia owns shares in First Real Estate Investment Trust and EC World Real Estate Investment Trust.