A Better Investment – Singapore’s Largest REIT Vs. Malaysia’s

The major stock market indices in Singapore and Malaysia – the Straits Times Index (SGX: ^STI) and the Kuala Lumpur Composite Index, respectively – are home to some of the largest real estate investment trusts in the South-East Asia region.

In Singapore, CapitaLand Mall Trust (SGX: C38U) is the largest REIT in the STI and the stock market. The REIT, which is sponsored by Singapore’s largest property developer, CapitaLand Ltd (SGX: C31), owns and manages 16 properties in Singapore.

Most of CapitaLand Mall Trust’s properties are retail malls such as Bugis Junction and Tampines Mall. But, the REIT also has Raffles City Singapore in its portfolio and the property houses a retail mall, office tower, and hotel. CapitaLand Mall Trust currently has a market capitalisation of S$6.9 billion.

In the case of Malaysia and the KLCI, KLCC Property Stapled Group (KLSE: 5235SS.KL) is the entity holding the largest REIT. The stapled group was formed in 2013 when KLCC Property Holdings Berhad (KLCCP) underwent a restructuring. A stapled security of KLCC Property Stapled Group consists of a share of KLCCP as well as a unit of KLCC REIT.

KLCC REIT is the owner of three office buildings within Kuala Lumpur City Centre, namely, the iconic PETRONAS Twin Towers, Menara ExxonMobil, and Menara 3 PETRONAS. Meanwhile, KLCCP owns Suria KLCC (a “premier shopping mall”), Mandarin Oriental KL (a 5-star hotel), and has a 33% interest in Menara Maxis (an office tower).

The stapled group as a whole has a market capitalisation of RM12.6 billion (around S$4.2 billion) at the moment.

1 REIT versus another

KLCCP Stapled Group currently provides investors with a 2.8% distribution yield and is trading at 1.67 times its book value and 26 times trailing earnings.

The stapled group was only created in 2013. But if we look back at the financial results of its predecessor, the old KLCCP, the entity had been growing its revenue at an annual clip of 14.3% from 2011 to RM592.9 million in 2014. Its operating profit had climbed at an even more impressive annual rate of 16.8% over the same period.

Of the two, CapitaLand Mall Trust can be considered as the slower grower. From 2011 to 2014, the REIT grew its revenue by only 4.2% per year while its operating profit was flat.

But CapitaLand Mall Trust makes up for its lower growth rates with a more attractive valuation. At current prices, the REIT’s units offer a distribution yield of 5.6% and are trading at only 1.0 times book value and 13 times net earnings.

So, in determining which of the two property owners may be a better investment, investors have to ask themselves if they would rather pay up for higher growth or settle for an investment with a more reasonable valuation but lower growth.

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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 writer Stanley Lim does not own any companies mentioned above.