The Stronger Investment Now: CapitaLand Commercial Trust vs. Suntec Real Estate Investment Trust

Yesterday, I had looked at several aspects of the business fundamentals of CapitaLand Commercial Trust (SGX: C61U) and Keppel REIT (SGX: K71U) to see which might be the better real estate investment trust.

Both CapitaLand Commercial Trust and Keppel REIT are REITs that focus on commercial properties in Singapore. They are also among the larger REITs of that type and so, investors may be interested in a comparison.

I had looked at a few things with the two REITs: (1) Their gearing ratio; (2) their interest coverage ratio, (3) their historical book value per unit growth; (4) their historical distribution per unit growth; and (5) their price-to-book ratios. CapitaLand Commercial Trust ended up being the stronger REIT with its faster rate of growth and sturdier balance sheet.

I thought it may be interesting as well to see how CapitaLand Commercial Trust stacks up against Suntec Real Estate Investment Trust (SGX: T82U). In 2015, half of the latter’s net property income had come from its office properties in Singapore. The two REITs – CapitaLand Commercial Trust and Suntec REIT – also have very similar market capitalisations now of around S$4.2 billion.

With that, let’s jump into the ring.

Here’s how the gearing and interest coverage ratios for CapitaLand Commercial Trust and Suntec REIT looks like:

CapitaLand Commercial Trust and Suntec REIT balance sheet
Source: REITs’ earnings presentations (for first-quarter of 2016)

CapitaLand Commercial Trust comes ahead here with its lower gearing ratio and higher interest coverage ratio.

Let’s move to the growth numbers now. The following chart shows how the two REITs’ book value per unit and distribution per unit have changed over the past five years:

CapitaLand Commercial Trust and Suntec REIT's growth in book value per unit and distribution per unit (DPU) from 2010 to 2015
Source: S&P Global Market Intelligence

Both REITs have seen their book value per unit climb by similar amounts from 2010 to 2015. But, CapitaLand Commercial Trust is the one with the faster distribution growth.

We’re down to the price-to-book (PB) ratio and this is where Suntec REIT shines. With its latest book value per unit of S$2.138 and unit price of S$1.68, it has a PB ratio of 0.78. This is marginally lower than the PB ratio of 0.83 that CapitaLand Commercial Trust carries.

A Fool’s take

As we’ve seen, CapitaLand Commercial Trust has a stronger balance sheet and better track record of growth when compared to Suntec REIT. Moreover, its PB ratio is just a tad higher than that of Suntec REIT’s. It would thus seem like CapitaLand Commercial Trust would be the better commercial REIT of the two.

That said, it’s worth noting that none of what we’ve seen above about the two REITs should be taken as the final word on their investing merits. Deeper research is needed before any investing conclusion can be made.

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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 Chong Ser Jing doesn't own shares in any companies mentioned.