REITs have continued to fall in recent weeks with many well regarded SREITS trading at 52 week lows.
Here we look at 5 SREITS that we think are worth buying at current levels.
| REIT | Ticker (SGX) | 1 Year Return | Dividend Yield | Gearing Ratio | Price to book ratio (times) |
| Cromwell European REIT | CWBU | -33.3% | 11.3% | 38.2% | 0.6 |
| Lendlease Global Commercial REIT | JYEU | -32% | 8.5% | 40.6% | 0.7 |
| Mapletree Pan Asia Commercial Trust | N2IU | -23.8% | 6.4% | 40.9% | 0.8 |
| ARA US Hospitality Trust | XZL | -31.1% | 9.7% | 39.7% | 0.4 |
| CapitaLand China Trust | AU8U | -17.9% | 8.3% | 40.2% | 0.7 |
1. Cromwell European REIT (SGX: CWBU)
CEREIT is a unique REIT among SREIT peers with a geographically diversified portfolio of 110+ properties across ten European countries (United Kingdom, Denmark, Finland, France, Germany, Italy, the Netherlands, Poland, the Czech Republic and Slovakia).
CEREIT has a mandate to invest in commercial real estate assets across Europe with a minimum portfolio weighting of at least 75% to Western Europe and at least 75% to the light industrial / logistics and office sectors.
CEREIT recorded stable NPI increase of 1.8% YoY but saw DPU declined 10.4% due to finance costs increasing 50%. NAV was also 12 cents lower YoY at €2.30 per unit due to fair value loss on its investment property.
In recent times, CEREIT divested €135 million in assets at a 5.4% premium and is pending the divestment completion of its Bari Europa asset valued at €94 million. These sales are consistent with CEREIT’s previously stated strategy to divest non-core and non-strategic assets within CEREIT’s portfolio over the next two to three years.
Although global real estate fundamentals are not expected to improve for a year or so, CEREIT believes that Europe is expected to outperform other major markets notwithstanding the impact from slowing economic growth and softer valuations.
These asset sales would lead to a short-term impact on DPU. In addition, CEREIT has redevelopments accounting for nearly 6% of DPU in progress. This strategy also reduces its gearing ratio and finance costs and would prepare CEREIT well to take advantage of the cyclical upturn.
2. Lendlease Global Commercial REIT (SGX: JYEU)
Lendlease Global Commercial REIT (“LREIT”) is a REIT with 2 retail assets namely 313@Somerset, JEM, retails mall in Singapore and Sky Complex, an office asset in Milan, Italy. In addition, LREIT recently took a 10% stake in Parkway Parade, another retail asset.
LREIT recorded DPU decline of 3.2% for FY23 and a decline of 8.4% for 2H23. This was mainly due to higher finance costs. Gearing also creeped up to 40.6% due to the acquisitions.
LREIT’s portfolio committed occupancy remained high at 99.9% with a long weighted average lease expiry of 8.2 years.
Lease expiring profile remained well-spread with only 5.2% by NLA due for renewal in FY2024. LREIT’s portfolio valuation has also increased by 1.4% YoY to S$3.65 billion attributed to the uplift in market rents and improved market sentiments in Singapore’s retail sector. Consequently, NAV increased 1 cent to $0.79.
In May 2023, LREIT’s office portfolio achieved 5.9% positive rental escalation from Sky Complex. With a long office WALE of 12.1 years by NLA, this asset will continue to generate stable income stream.
A long total portfolio WALE attests to LREIT’s ability to secure shareholder return with a stable portfolio over a long timeframe, which is a key reason why this is one REIT worth buying.
3. Mapletree Pan Asia Commercial Trust (SGX: N2IU)
Mapletree Pan Asia Commercial Trust (MPACT) is the renamed entity after Mapletree Commercial Trust (MCT) acquired and merged with Mapletree North Asia Commercial Trust on 3 Aug 2022.
Following the merger, MPACT now has 18 properties across five key gateway markets of Asia – five in Singapore, one in Hong Kong, two in China, nine in Japan and one in South Korea.
MPACT recorded DPU increase of 6.1% for FY23 due to better performance of its Singapore assets in spite of higher utility and finance costs. NAV per unit increased by 2 cents to $1.76 due to the merger where shares were issued above NAV and also due to a net gain in fair value of its investment properties.
Due to its geographic exposure, MPACT’s journey to post-pandemic recovery will be uneven, particularly due to the fragile global economy and recent downturns in the tech and finance sectors. However, these are also opportunities should China’s economy and retail sentiment improves.
MPACT has a long tradition of carrying out proactive asset enhancement initiatives (AEI). It is carrying out yet another AEI to revitalise its trophy VivoCity retail asset in Singapore which is expected to yield returns once stabilised.
MPACT is also proactive with its lease renewals and successfully renewed major leases at Bank of America HarbourFront, Festival Walk, Gateway Plaza and MBC during the year with an overall positive rental reversion, securing a committed occupancy of 95.4% and underpinning its portfolio resilience. MPACT’s China properties currently has an occupancy of 86.5% which would provide upside opportunities once filled.
Fundamentally, MPACT is a REIT with a proactive management, managing its assets to higher yields and mitigating risks. Together with its portfolio of trophy assets, the REIT is one of the largest and most stable REIT in the STI. We also recently covered MPACT here as an undervalued stock.
4. ARA US Hospitality Trust (SGX: XZL)
ARA US Hospitality Trust (“ARA Trust”) comprises 37 upscale select-service hotels, totalling 4,826 guest rooms across 19 states in the US. The portfolio of hotels is broadly diversified across a variety of submarkets with diverse demand generators and proximity to guest amenities.
As a beneficiary of travel, ARA Trust saw broad based recovery. RevPAR, Revenue and net property income all increased, offset by an increase in finance costs. However, ARA REIT still managed a DPU increase of 5.2%, outpacing inflationary and interest rate increases.
While occupancy rates are slightly below pre-pandemic levels as corporate and group travel have yet to fully recover, strong increases in average daily rates have boosted RevPAR.
The US market continued its recovery in 1H 2023 and the outlook for the rest of the year remains positive. Although economic sentiment turned cautious amid inflationary concerns and risks of economic slowdown, lodging demand remained resilient and continues to recover, with gaining momentum in the business and group demand segments boosting overall demand.
There is a growing trend of hybrid work arrangements contributing to an increase in “business leisure” demand, where guests extend travel days beyond weekdays to combine business and leisure travel. Large group meetings and conventions, which take longer lead times to plan, are starting to return.
As part of its ongoing portfolio optimisation strategy, ARA Trust completed the acquisition of Home2 Suites by Hilton Colorado Springs South hotel using net cash proceeds from prior divestments of non-core hotels. The Home2 Suites hotel was acquired at a FY2022 NPI yield of approximately 9.0% and was immediately accretive to the portfolio.
ARA Trust is also selling its Hyatt Place Oklahoma City Airport (“HPOKC”) for US$8 million, one of the hotels identified as non-core with declining performance exacerbated by the COVID-19 pandemic.
ARA Trust is a REIT with demand tailwinds and is also keeping up with its ongoing portfolio optimisation strategy. While there are macro factors at play, this is one unlikely candidate to be trading at 52 week lows.
5. CapitaLand China Trust (SGX: AU8U)
CapitaLand China Trust (CLCT) is Singapore’s largest China-focused REIT with total assets of approximately S$5.2 billion as at 31 December 2022.
CLCT has a portfolio that constitutes 11 shopping malls, five business parks and four logistics parks in 12 cities.
CLCT saw gross revenue and net property income increase 0.8% YoY. However due to the devaluation in RMB, NPI in SGD terms declined 7.4%. In addition, finance costs increased 24.5%. Consequently, DPU declined 8.8%.
Occupancy of CLCT’s business park portfolio increased to 91.5% as at 1H 2023. Occupancy for logistics park portfolio stood at 91.2%. CLCT’s business park assets achieved a positive rental reversion of 3.9% for 1H 2023 amidst a better 2Q 2023 in leasing activity supported by demand in the Electronics and Engineering sectors.
CLCT’s retail portfolio occupancy was 96.8%. 1H2023 rental reversion was positive at 4.1%. Shopper traffic increased 31.7% YoY, boosted by strong footfall recovery in CLCT’s retail assets in Beijing. Tenant sales grew 32.0% YoY with 2Q 2023 sales exceeding pre-pandemic levels.
CLCT is also focused on AEI. CapitaMall Grand Canyon’s AEI to reconfigure around 9,000 square metres of recovered supermarket space from basement one to level one will enable the mall to attract a diverse range of specialty stores, including 7Fresh, a 3,700 square metres omnichannel supermarket operated by leading online retailer JD.com. The rejuvenated area on level one has been fully leased and commenced operations in July 2023, with an anticipated 60% increase in rental income post AEI.
Meanwhile, the AEI at Rock Square, which will optimise about 4,000 square metres of retail space across basement two and level three, is on track to complete in 3Q 2023. Post AEI, this will generate an estimated return on investment of over 13% and 18% respectively for the rejuvenated areas on each level.
From a macroeconomic perspective, China’s 2Q 2023 GDP expanded 6.3% in the second quarter, from 4.5% in the first three months of 2023. Industrial production came in above expectations, growing 4.4% YoY in June, as compared to 3.5% YoY growth in May.
After China’s 2Q 2023 GDP announcement, China’s Commerce Ministry introduced an 11-point plan to restore and drive domestic consumption, by providing support for household purchases of consumer goods and services. The China Politburo also reiterated its stand to boost consumption and turn it into a key growth driver.
CLCT has policy tailwinds supporting its recovery and is also keeping up with its AEIs. The macro factors at play, probably explains why it is trading at 52 week lows. We believe CLCT is positioned to ride the recovery of domestic consumption with well-staggered AEIs across multiple assets.
Are REITs too risky or are these legit opportunities?
A persistently high interest rate environment coupled with a perceived weak global economy and negative rental climate have significantly dampened sentiments in REITs.
Organic growth has been challenging and to make matters worse it is also hard to grow inorganically via acquisitions as it would likely require equity fund raising from unitholders.
With this, we have identified 5 REITs trading at 52 week lows out of the 40+ Singapore listed REITs. We have also provided a variety of reasons why they might be worth buying now.
We were also not able to find a reason why these 5 REITS are trading at 52 week lows, other than due to the broader macro environment.