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Better Buy: CapitaLand Commercial Trust vs. CapitaLand Mall Trust

CapitaLand Commercial Trust (SGX: C61U) and CapitaLand Mall Trust (SGX: C38U) are two of three real estate investment trusts (REITs) that belong to the Straits Times Index (SGX: ^STI). The two REITs are also sponsored by CapitaLand Limited (SGX: C31), another Straits Times Index component. Being blue-chip REITs speaks volumes about their strength. However, if you could only invest in one of the REITs, which would be a better choice? That’s what we are about to find out.

A tale of two of the biggest REITs

CapitaLand Commercial Trust, or CCT, is Singapore’s largest commercial REIT with a portfolio of eight office properties in Singapore and one commercial property in Germany.

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Source: CapitaLand Commercial Trust investor presentation

Meanwhile, CapitaLand Mall Trust, or CMT, is Singapore’s largest retail REIT that owns 15 shopping centres in Singapore. Some of those malls include Tampines Mall, Junction 8, and Plaza Singapura. CMT also holds a significant stake in CapitaLand Retail China Trust (SGX: AU8U), the first China shopping mall REIT in Singapore.

Source: CapitaLand Mall Trust investor presentation

Gross revenue growth

First, let’s compare the gross revenue growth of CCT and CMT from 2014 to 2018. The gross revenue shows the amount of rental income that mainly flows into the REITs.

For the past five years, the REITs exhibited the following gross revenue growth per annum:

  CapitaLand Commercial Trust CapitaLand Mall Trust
Gross revenue growth 10.7% 1.4%

Source: REIT annual reports; author’s compilation

CCT’s gross revenue has grown from S$262.6 million in 2014 to S$394.0 million in 2018 while that of CMT has increased from S$658.9 million to S$697.5 million during the same time frame. In terms of annualised growth, CCT’s growth of slightly over 10% has handsomely beaten CMT’s growth of just around 1%.

Winner: CapitaLand Commercial Trust

DPU and NAV growth

The distribution per unit (DPU) reveals how much unitholders get from owning the REITs. Meanwhile, the net asset value (NAV) per unit is the difference between a REIT’s assets and its liabilities. The increase in a REIT’s unit price tends to track the growth in both its DPU and NAV per unit over the long-term.

The table below compares the DPU and NAV growth per year of the two REITs from 2014 to 2018:

  CapitaLand Commercial Trust CapitaLand Mall Trust
DPU growth 0.7% 1.5%
NAV growth 1.3% 2.8%

Source: REIT annual reports; author’s compilation

Even though CMT’s gross revenue didn’t grow as much as that of CCT (as seen earlier), the retail REIT has produced far better returns for unitholders.

Winner: CapitaLand Mall Trust

Financial strength   

Here, we will compare the gearing ratio and interest cover of the two REITs, which reveal the strength of a REIT’s balance sheet. The gearing ratio shows how much leverage a REIT has taken on. Singapore REITs have a gearing limit of 45%, as required by the Monetary Authority of Singapore. As for the interest cover, it reveals how easily a REIT can pay interest expenses on its outstanding borrowings.

  CapitaLand Commercial Trust CapitaLand Mall Trust
Gearing ratio 35.2% 34.4%
Interest cover 5.8x 4.9x

Source: REIT earnings; author’s compilation (figures as of 31 March 2019)

CCT has a higher gearing ratio than CMT, but in terms of interest cover, it has a better figure than its sister REIT.

Winner: It’s a tie

Valuations

As investors, we should focus on the value of the REITs and not on the daily changes in their unit prices. Let’s now look at the price-to-book (PB) ratio and dividend yield of the two REITs. The values below are as of the closing prices on 18 June 2019.

  CapitaLand Commercial Trust CapitaLand Mall Trust
PB ratio 1.16 1.26
Distribution yield 4.2% 4.5%
Unit price S$2.11 S$2.57
Market capitalisation S$7.9 billion S$9.5 billion

Source: REIT earnings; author’s compilation

In terms of the PB ratio, CCT has the upper hand over CMT. However, CMT triumphs over CCT with a higher distribution yield.

Winner: It’s a tie again

Growth prospects

I feel CCT has better growth prospects than CMT. Currently, CMT is focused solely in Singapore but CCT has started venturing overseas with the acquisition of a commercial property called Gallileo in Frankfurt, Germany. CCT plans to allocate up to 20% of its portfolio property value overseas while being mainly focused in Singapore. The recovering Singapore office market rents could also bode well for the office REIT. For more on CCT’s growth options, you can head here; CMT’s growth prospects can be found here.

Winner: CapitaLand Commercial Trust

The Foolish conclusion

It was a very close fight between the two giant REITs. In the end, though, CapitaLand Commercial Trust triumphs over CapitaLand Mall Trust due to its better gross revenue growth and future growth prospects.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand Commercial Trust, CapitaLand Mall Trust and CapitaLand Limited. Motley Fool Singapore contributor Sudhan P owns shares in CapitaLand Commercial Trust and CapitaLand Mall Trust.