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Key Differences between CapitaMall Trust and Frasers Centrepoint Trust That Investors Have To Know

There are a few real estate investment trusts in Singapore that have a focus on retail malls. CapitaMall Trust and Frasers Centrepoint Trust (SGX: J69U), with their market capitalisations of S$7.03 billion and S$1.7 billion respectively, are two of the bigger REITs in that space.

On first glance, both REITs seem very similar to each other. They are both sponsored by larger property development companies; CapitaMall Trust is part of CapitaLand (SGX: C31) while Frasers Centrepoint Trust is sponsored and managed by Frasers Centrepoint (SGX: TQ5). In addition, both REITs focus on heartland malls located throughout Singapore.

But, that’s where the similarities stop. In fact, there are big differences between the two that investors have to know.

Tenant mix

If you’re the owner of a property, the financial performance of that piece of real estate is very much affected by your tenants. If your tenants are doing well, you can easily raise their rent. If they are suffering, you might have to face a low occupancy rate for your property.

Therefore, it is important to know the breakdown of a REIT’s tenant mix. In CapitaMall Trust’s case, 16.6% of its net lettable area is actually used for warehousing and office purposes. As for Frasers Centrepoint Trust, its top 10 tenants are all in the retail sector; in fact, all of the trust’s rent comes from retailers.

That is something important to take note of when comparing the two REITs.

Number of malls

CapitaMall Trust is one of the largest retail trusts in Singapore and it has full or partial interest in 16 properties. Frasers Centrepoint on the other hand, has a smaller scale with only 5 malls in its portfolio. In terms of having a diversified portfolio, CapitaMall Trust will be at an advantage here.

Foolish Summary

Investors choosing between the two REITs should also bear in mind the threat of e-commerce which might draw shoppers away from retail malls. Recently, China’s largest e-commerce outfit, the Alibaba Group, had invested in logistics and mail service provider SingPost (SGX: S08). Such a development suggests that the threat of e-commerce to retail malls might be closer than we think.

In addition, investors should also consider interest rate risks that can affect all REITs; if interest rates start climbing, REITs will have to stomach higher interest costs, resulting in lower distributions for unit-holders.  As such, REITs with stronger balance sheets might be affected less by interest rate hikes.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Frasers Centrepoint Ltd.