How to value a REIT

How do you decide when to buy a REIT or which REIT to buy ? Here are some of the criteria I use to value them and see if they are worth buying and keeping. REITs allow you to earn “rental income” in the form of dividends paid out from the rent collected from the tenants of the properties under those REITs.

1. Price / NAV < 0.7

The price of the REIT not be above the price of the assets it holds so you get a discount on the price you buy. Just like we wouldn’t pay $2 for a cup of coffee at a kopitiam when it usually cost about $1.

2. Debt / Asset < 0.35

Low debt is favored so in the event interest rates go up, the debt repayments would not impact the REIT’s cash position too much.

3. Dividend Yield > 6%

Good yield is what we are looking for here since REITS are essentially held for dividends rather than for the capital gains.

Let’s analyse a few REITS using the metrics above to see if they are worth keeping or buying. These figures are taken from ShareInvestor, a great portal for you to take a look at stocks for both technical and fundamental purposes.

Financial Year 2013 Sabana Cache Mapletree Industrial
Price / NAV 0.97 1.11 1.21
Debt / Asset 0.36 0.29 0.35
Dividend Yield % 8.8 7.9 6.9

Looking at this, seems like Sabana is the most attractive since has the highest yield and lowest Price /NAV though it could be better in the Debt/Asset.

Sabana pays out dividends quarterly so you can receive it pretty regularly as compared to other stocks that only declare once or twice a year. Today also happens to be the Ex-Dividend date for Sabana so if you are holding on to Sabana REIT, congratulations.

If you buy it today, you will not receive the dividends for this round though so you may want to wait or keep a lookout for other stocks at the moment.

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