Mapletree Investments Pte Ltd, which is owned by Temasek Holdings, manages a total of four REITs. I decided to compare two of their REITs to see which would be the more attractive buy for investors. Those REITs are Mapletree Commercial Trust (SGX: N21U), or MCT; and Mapletree Logistics Trust (SGX: M44U), or MLT.
MCT invests in a portfolio of income-producing real estate used primarily for office and/or retail purposes. Its portfolio consists of five properties — VivoCity, MBC 1, PSA Building, Mapletree Anson, and MLHF — with a total of 3.9 million square feet valued at S$7 billion. MLT is an Asia-focused logistics REIT that owns a portfolio of 141 properties in Singapore, Hong Kong, Japan, China, Australia, South Korea, Malaysia, and Vietnam. The total value of MLT’s properties is around S$8 billion.
I decided to take a look at three aspects of these two REITs in order to determine which is more attractive.
DPU increase and dividend yield
Firstly, let’s look at which REIT has had a higher year-on-year increase in distribution per unit (DPU). MLT has reported a 4.2% increase, while MCT’s only rose 1.1%. Note, though, that MLT reported a high DPU due to S$1.3 billion worth of acquisitions during the fiscal year, which brought its assets under management to the current S$8 billion from S$6.5 billion (inclusive of capital appreciation in the valuation of all its properties).
MLT also boasts a higher dividend yield of 5.1% based on the last traded price of S$1.57 for the REIT. This is slightly higher than the dividend yield of 4.5% for MCT.
Leverage ratio and cost of debt
Next we’ll look at gearing level and weighted average cost of debt for both REITs. The gearing level represents how much more the REIT can borrow (i.e., gear up) to make DPU-accretive acquisitions before it hits the statutory gearing level of 45% for REITs. MCT has a lower gearing than MLT as MLT had geared up for its acquisitions during the fiscal year. However, MLT has a slightly lower cost of debt at 2.7% versus MCT’s 2.97%.
Gearing level is the more important attribute of the two, though, as cost of debt can be negotiated downward if the underlying properties are stable and have high occupancy rates. Hence, MCT is in a better position than MLT in this respect.
Occupancy rate and WALE
The last two aspects I compared were the occupancy rate and weighted average lease expiry (WALE) of both REITs. A high occupancy rate is a strong vote of confidence for the REIT as it means its assets are meaningfully deployed to generate income for the unitholder. A longer WALE is also preferred as it means rents are locked in for a longer period of time, and this provides the REIT with predictability and stability.
MLT and MCT’s occupancy rates are fairly similar, and both are very high, so I turned my attention to their respective WALEs. MLT clearly has an advantage over MCT as its WALE is almost a full year longer.
Future growth prospects
The above are just a few points of comparison for the REITs, and MLT has emerged the winner in two out of these three categories. However, investors should also study the future growth prospects of both REITs — in terms of both potential portfolio additions and probability of higher rental rates. MLT states that a slowdown in international trade and manufacturing could have a negative impact on the demand for warehouse space, and this is a possible red flag for investors who are considering this REIT. For MCT, the retail supply pipeline is expected to tighten in the next few years, which is a positive for the overall retail market. For the office market, though, there is some occupier resistance to the pace of rental increases, and negotiations for renewals are becoming more protracted. This seems to imply that retail would do well while office rentals may see flat growth.
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 the shares of Mapletree Commercial Trust and Mapletree Logistics Trust. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.