When it comes to diversification, I like to keep a percentage of real estate in my portfolio. Real Estate Investment Trusts (REITS) are an excellent way to add real estate while maintaining liquidity and removing the burden of property management. While using the GuruFocus All-In-One Screener, I searched for REITs that provide at least an 8 percent return on equity (ROE) along with either at least 5 percent growth in EBITDA, earnings, or book value over the past five years and past year. As I was going through the results, of the REITs outside of the United States, REITs from Singapore had the largest showing. I found it interesting and decided to look a little further into Singapore REITs.
Just like REITs in the U.S., Singapore REITs, also known as S-REITs, are required to distribute at least 90 percent of its taxable income. The company's borrowings cannot exceed 35 percent of its total assets. Valuations are done on the assets at least once a year. If a lower asset value puts the company above the 35 percent mark, further borrowing has to stop.
So far this year, the Singapore market has slightly outperformed the S&P 500. The Straits Times Index is up 4.8 percent year-to-date, and the S&P 500 is up about 3.5 percent. The GuruFocus Global Market Valuation section of the site indicates that Singapore has the highest implied annual future returns of the developed global economies.
According to the total market cap over GDP ratio, its market is projected to have an annualized return of 16.5 percent for the coming years. GDP growth in the city-state has decelerated this year from growth of 5 percent to its current rate of 2.1 percent.
The Singapore dollar has been stable against the U.S. dollar for the past four years. In the years preceding its current stable environment, the Singapore dollar had a large increase in value against the U.S. dollar by about 38%. There has been some cooling off in private-home prices this year. The government has been trying to cool off the rise in the real estate market that it views as unsustainable.
The following stocks appeared on the screens and are available on both the Singapore Exchange and OTC in the United States:
CDL Hospitality Trust (CDHSF, SGX:J85) owns a portfolio of hotels and resorts in Singapore, Australia, New Zealand and the Maldives. If you do not have enough money to buy your own picturesque island paradise, this is a way to buy a very small piece of it with the Maldives resorts in the portfolio. The stock is currently trading at its book value. Book value per share has been increasing at an annual rate of 5.66 percent over the past five years. Its ROE for the past twelve months is 8.49 percent.
Market Cap: 1.19 billion, P/E: 11.60, Dividend Yield: 3.60%
Business Predictability: Not Rated, Financial Strength: 5/10, Profitability & Growth: 7/10
Mapletree Logistics Trust (MAPGF, SGX:M44U) has properties that include industrial warehouses, distribution centers, food and cold storage, as well as other logistics-related properties. Its properties are located in Singapore, China, Hong Kong, Japan, Malaysia, South Korea, and Vietnam. The stock is trading at a P/B ratio of 1.10. The book value per share has been increasing at an annual rate of 10.57 percent over the past five years. The ROE for the past twelve months is 10.87 percent.
Market Cap: 2.31 billion, P/E: 10.50, Dividend Yield: 3.60%
Business Predictability: Not Rated, Financial Strength: 5/10, Profitability & Growth: 7/10
Frasers Centrepoint Trust (FRZCF, SGX:J69U) currently owns six suburban shopping malls in Singapore. The stock is currently trading at its book value. The book value per share has been increasing at an annual rate of 13.06 percent over the past five years. Its ROE for the past twelve months is 17.55 percent. The balance sheet is stronger than the Financial Strength ranking indicates. Its leverage is only 27.6 percent, has interest coverage of 6.15 times, and a low borrowing cost of 2.73 percent.
Market Cap: 1.41 billion, P/E: 5.50, Dividend Yield: 5.60%
Business Predictability: Not Rated, Financial Strength: 3/10, Profitability & Growth: 8/10
Suntec Real Estate Investment Trust (SURVF, SGX:T82U) has a portfolio that contains office and retail properties in the downtown core of Singapore. The stock is currently trading below book value at a P/B ratio of 0.80. Book value per share has been increasing at a rate of 7.65 percent over the past five years. Its ROE for the past twelve months is 6.52 percent.
Market Cap: 3.67 billion, P/E: 12.40, Dividend Yield: 3.80%
Business Predictability: Not Rated, Financial Strength: 6/10, Profitability & Growth: 6/10
Capitamall Trust (CPAMF, SGX:C38U) is Singapore’s first and largest REIT. It was established in 2002. Its portfolio comprises 16 retail properties that are strategically located in the suburban areas and downtown core. The stock is trading at a P/B ratio of 1.10. Book value per share has been increasing at a rate of 5.03 percent over the past five years. Its ROE over the past twelve months is 10.08 percent.
Market Cap: 5.36 billion, P/E: 11.00, Dividend Yield: 4.00%
Business Predictability: Not Rated, Financial Strength: 6/10, Profitability & Growth: 5/10
REITs are a great way to add real estate to your portfolio. While using the GuruFocus All-In-One Screener, I discovered that outside of the U.S., Singapore has plenty of REITs available at attractive prices. The median P/B ratio for the Global REIT industry is 1.27, and all of the REITs above are trading more than 13 percent below the median while their book values per share are still increasing. These stocks are not going to be guaranteed successes, but they provide some interesting ideas for finding value in real estate outside of the United States. A GuruFocus Global Membership provides more data on stocks trading in the Asian markets an d can help with your research.
