REITs have been one of the favourite sector investors love. Investors may feel secured with properties as the assets. Investors may also love the regular quarterly payouts that acts as passive income. However, I do not buy REITs because of income. I buy REITs for capital gain. The reason why I like REITs is because they are easier to value than other businesses so I would be able to know if a REIT is cheap or expensive.
On 9 Mar 12, I released a list of Singapore REITs and said that 7 of them are trading at more than 30% discount. I will do a performance review between the period of 9 Mar 12 and 31 Dec 12.
REITs with more than 30% discount to Net Asset Value (NAV) on 9 Mar 12:
- Fortune REIT: +61% (from $3.95 to $6.37)
- FrasersComm: +60% (from $0.825 to $1.32)
- Keppel REIT: +39% (from $0.935 to $1.295)
- Suntec REIT: +37% (from $1.22 to $1.675)
- Saizen REIT: +27% (from $0.142 to $0.181)
- Starhill Global: +27% (from $0.62 to $0.785)
- LippoMalls: +24% (from $0.395 to $0.49)
- Average: +39%
REITs with 0 to 30% discount to NAV on 9 Mar 12:
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- AIMS AMP Capital: +57% (from $1.075 to $1.685)
- CapitaComm: +40% (from $1.2 to $1.685)
- MapleTree Comm: +40% (from $0.87 to $1.22)
- Cambridge: +29% (from$0.525 to $0.675)
- Ascott REIT: +27% (from $1.075 to $1.36)
- Sabana REIT: +23% (from $0.93 to $1.14)
- Average: +36%
REITs trading above NAV on 9 Mar 12:
- FrasersCT: +33% (from $1.505 to $2)
- First REIT: +28% (from $0.825 to $1.06)
- MapleTree Log: +25% (from $0.915 to $1.145)
- MapleTree Ind: +21% (from $1.125 to $1.36)
- Cache Log: +20% (from $1.02 to $1.24)
- Ascendas: +17% (from $2.03 to $2.37)
- CapitaMall: +17% (from $1.825 to $2.13)
- Average: +23%
From the above illustration, we see that all REITs had made double digit gains last year. The 7 REITs with the largest discounts gained 39% while edging close with 36% gain are those REITs trading at slight discount. The REITs that were trading above their NAV gained 23%. Hence, buying REITs at discount yields a better return than buying those that are trading above NAV.
Going forward, are there still upside for REITs? I am not sure and I do not want to appear to have a crystal ball in front of me. But with the understanding that discount to NAV can give us some margin of safety, I can rank the REITs accordingly based on recent prices.
Unlike last year, we only have 2 REITs trading at more than 30% discount to NAV. They are Saizen and Frasers Comm. Many REITs have gone up in price and it has become expensive to buy. I am not saying REITs would not go up higher. Probably they would but the risk has definitely increased. Click on the image below to enlarge.
Disclaimer: This is solely for information and not an investment advice.