These 3 REITs Are Still Cheap. But Are They Worth Buying?

The REITs sector took a big tumble back in March when the stock market crashed.

Back then, fear was swirling over whether REITs would be forced to drastically cut their distribution per unit (DPU) to weather the COVID-19 storm.

When earnings from some of the more popular REITs, such as Frasers Centrepoint Trust (SGX: J69U), or FCT, and Mapletree Commercial Trust (SGX: N2IU), or MCT, were released, investors’ worst fears did come true.

FCT reported a 48.7% year on year drop in its latest quarter’s DPU, while MCT slashed its quarterly DPU by 60.6%.

Many investors must have wondered if the REIT model had been broken.

Surprisingly, though, the REIT sector has rebounded strongly in the last two months.

Whether this represents a real rally or is just temporary respite remains to be seen.

What’s clear, however, is that many REITs are now not as cheap as they were back in late-March.

But there are three REITs that are still trading at cheap valuations.

Lippo Malls Indonesia Retail Trust (SGX: D5IU)

Lippo Malls Indonesia Retail Trust, or LMIRT, owns and invests in income-producing retail properties in Indonesia.

The REIT’s portfolio comprises 23 retail malls and seven retail spaces located within other malls.

The REIT’s net asset value (NAV) as at the end of the first quarter of 2020 was S$0.22. At a share price of S$0.14, the REIT is trading at a price to book of just 0.63 times.

However, the REIT’s DPU for that quarter plunged 78.2% year on year to S$0.0012 due to the closure of the REIT’s malls on 27 March and the retention of money as a contingency to support tenants due to the pandemic.

Based on this level of DPU, annualised yield stands at just 3.4%.

Investors, however, should perk up with the news that the majority of LMIRT’s malls have reopened since 15 June.

Apart from entertainment outlets, most retail stores, including dine-in at food and beverage outlets, have resumed.

While the DPU for the second quarter of 2020 will surely be poor due to these temporary closures, investors can take heart that things should improve hereon, barring a possible second wave of COVID-19 infections in Indonesia.

ARA US Hospitality Trust (SGX: XZL)

ARA US Hospitality Trust invests in income-producing real estate used for hospitality purposes in the US.

Its portfolio consists of 41 select-service hotels with a total of 5,340 rooms spread out across 22 states.

Because of COVID-19’s rapid spread in the US, many hotels have witnessed plunging demand as lockdowns and movement restrictions were enforced across the country.

Year to date, ARA US Hospitality Trust’s share price has plummeted 50%, and at US$0.43, is trading at a 46% discount to its NAV of US$0.80 as at the end of the first quarter of 2020 (1Q 2020).

Because of the pandemic, the REIT reported that gross revenue for 1Q 2020 was 24.5% lower than its IPO forecast, while net property income was 68.2% lower than forecast.

However, signs are appearing that show a gradual recovery for the US hotel industry.

The occupancy rate has increased from a low of 20+% in mid-April to around 35% by late-May.

As the US opens up its economy and air travel is gradually restored, ARA US Hospitality Trust could start to report better numbers.

First REIT (SGX: AW9U)

First REIT is Singapore’s first healthcare REIT. Its portfolio consists of 20 properties located in Singapore, Indonesia and South Korea.

The REIT’s share price has tumbled 28% year to date, and the latest plunge from S$0.89 to S$0.70 was due to a press release from Lippo Karawaci, the operator of the REIT’s hospital assets in Indonesia.

In the release, Lippo Karawaci plans to initiate a restructuring process with First REIT regarding rental support that is being provided to the hospitals.

Although the manager for First REIT has confirmed that no discussions have yet taken place, this news may mean that First REIT’s DPU might be materially impacted should rental support decrease.

First REIT’s NAV as of 31 December 2019 stood at S$0.9964, and at a current share price of S$0.73, the REIT is trading at a price to book of 0.73 times.

DPU for the first quarter of 2020 fell by 13.5% year on year to S$0.0186. The annualised DPU for the REIT stands at S$0.0744, and its annualised yield stands at 10.2%.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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