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REIT 4Q18 Report Card: 2 REITs Value Investors Would Love

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In part five of this 6-part series, we turn our focus towards REITs that value investors will fall in love with. Here are three REITs that you want to keep in your watchlist if you are a value investor.

Investors Takeaway: 3 REITs Value Investors Would Love

  1. Suntec REIT

Since early 2018, there has been an increasing number of sell-side analysts turning bullish on Suntec REIT as the market becomes convinced of Suntec REIT’s undervaluation. This is driven by mounting evidence of a sustained turnaround at Suntec City Mall where spot office rents have been on an upward trajectory. DBS also notes that the underlying distribution per unit will continue to improve at 3-4 percent per annum.

According to DBS, Suntec REIT deserves to be trading at a premium to its current share price given that Suntec’s office and retail properties are trading at a discount to recent exit yields. Moreover, with office rents expected to be on a multi-year upturn, Suntec REIT should close the gap to its book value. One of the low-hanging fruits that could catalyst Suntec REIT’s share price is for the manager to remix its tenant mix and play children stores closer to the playground. The resulting higher foot traffic, tenant sales and improving rents will act as a re-rating catalyst.

BUY, TP $2.12, REIT Report Card Rating: B

  1. Ascott Residence Trust

Following disappointing DPU performance over the past few years, Ascott Residence Trust finally managed to put its DPU growth back on track. Ascott Residence Trust’s FY18 DPU grew by one percent year-on-year, which was above consensus forecast. Ascott Residence Trust’s FY18 revenue increased 3.6 percent due to additional contributions from the acquisitions of Ascott Orchard Singapore and DoubleTree Hilton Hotel New York. The acquisitions led to growth in gross profits from master leases.

Ascott Residence Trust ended FY18 with gearing remaining low at 36.7 percent. With such a low gearing, it leaves room for Ascott Residence Trust to tap onto inorganic growth. As such, the management will be turning its focus to acquisitions in FY19. It is looking at opportunities in Australia, Europe and the US with student accommodations and co-living properties among its interested properties. Given that Ascott Residence Trust is now trading at a conservative valuation to its portfolio value, DBS believes that there is potential for Ascott Residence Trust share price to rally.

BUY, TP $1.35, REIT Report Card Rating: B-

REIT 4Q18 Report Card: 2 REITs Growth Investors Would Love

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