SINGAPORE (June 12): With DPU uncertain, yield may not be the best indicator of value for REITs. As at March 31, the net asset values of most REITs stayed relatively stable. Hence P/NAV has been used in an attempt to identify undervalued REITs.

Among the REITs with the lowest P/NAV are Far East Hospitality Trust (FEHT), Sabana Shariah Compliant Industrial REIT and Starhill Global REIT (SG REIT). FEHT and Sabana REIT have Singapore assets and hence are not subject to foreign currency risk. Moreover, FEHT has a strong sponsor in Far East Organization which holds around 61% of the trust.

Although conditions for FEHT are likely to remain difficult for the rest of this year, the sponsor’s interest is totally aligned to those of minority unitholders. While master lease rents are questionable in certain cases — in an IPO in 2019, Eagle Hospitality Trust financially engineered a valuation based on its master lease — FEHT’s master lease rents provide genuine support.

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