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3 Cheapest REITs in Singapore Right Now

The late Benjamin Graham, author of the “The Intelligent Investor” and mentor to Warren Buffett, prescribed buying stocks that trade at a discount to their book values. 

In theory, buying a stock that trades at a discount to its book value is akin to buying a $1 coin for less than a dollar. Investors will reap a return when the market realises the discrepancy or when the company liquidates its assets and returns it to shareholders. The method of valuation is especially useful for real estate investment trusts (REITs) since they largely have tangible assets on their books. This means that their assets can likely be sold for their carrying book value. With that in mind, here are three REITs that, at current prices, trade at the biggest discount to book value.

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REIT #1

The cheapest REIT at the moment is Dasin Retail Trust (SGX: CEDU). The China retail REIT has a price-to-book ratio of 0.62. In the first quarter of 2019, the trust reported a 5.9% decline in revenue due to asset enhancement works at one of its malls. Based on first-quarter distribution per unit (DPU), it sports an annualised yield of 7.7%.

However, it is worth noting that two of Dasin Retail Trust’s major shareholders have waived their distribution which is artificially supporting the DPU. The waiver will expire in 2022 and the number of units not entitled to distribution will also decline in 2020 and 2021, which should lead to a drag on DPU in the future.

REIT #2

Fortune Real Estate Investment Trust (SGX: F25U) currently trades at a price-to-book ratio of 0.64. The Hong Kong suburban mall trust also has one of the lowest gearing ratios among REITs in the Singapore market at just 20.9%. This puts it in a great position to make yield-accretive acquisitions if an opportunity arises. 

On top of that, Fortune REIT has managed double-digit positive rental reversions in 2018, which should provide organic rental income growth. At its current price, Fortune REIT has a distribution yield of 4.8%.

REIT #3

The next cheapest REIT in the market is OUE Commercial Real Estate Invest Trust (SGX: TS0U) with a price-to-book ratio of 0.75. The REIT owns OUE Bayfront, One Raffles Place and OUE Downtown Office in Singapore, and Lippo Plaza in Shanghai.

The REIT has proposed a merger with OUE Hospitality Trust, whereby it will pay cash plus new units of the enlarged REIT to purchase all of OUE Hospitality Trust. However, based on the implied price, the offer may be unfavourable for existing OUE Commercial REIT unitholders, due to new units offered at a steep discount to book value. Investors will need to do their own due diligence regarding this.

The Foolish bottom line

The price-to-book ratio is just one aspect to look at when deciding on the REIT to invest in. Investors will also need to consider the portfolio capitalisation rate, portfolio characteristics, distribution yield, financial position, and management’s expertise when assessing if the REIT will make a good long-term investment.

Want to keep reading on how to lock in those sweet REIT dividends? Our Complete Guide To Buying The Best Singapore REITs dives into what we think you need to know about finding the best REITs that regularly hand you a fat dividend cheque. Click here to download your FREE guide.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns units in Fortune Real Estate Investment Trust.