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Which of These 3 Singapore Commercial REITs Is the Best Investment?

With a wide spread of different kinds of REITs to choose from, investors here are spoilt for choice. Investors need to develop a structured method for choosing a suitable REIT, and this also ties in with their personal income goals and investment methodology. For myself, I will delve into the different types of REITs in terms of the type of property investments they hold, in order to zoom in on a sub-sector which I feel is attractive.

I decided to look at REITs which invest in the commercial sector, as a commercial property has great prospects for rental increases and high occupancy in land-scarce Singapore. I chose three of the largest commercial REITs with strong sponsors. The first is CapitaLand Commercial Trust (SGX: C61U), which is managed by sponsor CapitaLand Limited (SGX: C31). The second is Frasers Commercial Trust (SGX: ND8U), managed by Frasers Property Limited (SGX: TQ5). Finally, there is Keppel REIT (SGX: K71U), which is under the umbrella of Keppel Corporation Limited (SGX: BN4).

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The metrics I used to compare them were i) distribution per unit (DPU) frequency and dividend yield, ii) year-on-year growth in DPU, and iii) gearing level. Here’s what I found.

DPU frequency and dividend yield

From the table above, Frasers Commercial Trust (FCOT) appears to have the most attractive dividend yield at 6.1%, and it also pays a quarterly dividend, meaning unitholders receive their dividends every three months instead of half-yearly like CapitaLand Commercial Trust (CCT). CCT and Keppel REIT’s dividend yields are both below 5%, which could be explained by their high-quality property portfolio, long track record and strong sponsor.

Winner: FCOT

DPU growth

The next aspect I looked at was the year-on-year increase in DPU. This gives an indication as to whether the REITs have been able to grow DPU, and is a proxy for the growth prospects of the REITs.

From the table, it looks as though CCT is the only one among the three REITs which saw a positive year-on-year increase in DPU. FCOT reported flat DPU which Keppel REIT saw a slight decline in DPU.

Winner: CCT

Gearing level

Finally, I looked at the gearing level for each of the REITs, as a way to determine if the REIT still has room to gear up for acquisitions. The statutory limit for gearing is 45% for REITs in Singapore, so any REIT approaching 40% would not have much room for further borrowing and may have to tap on to equity markets to raise capital for acquisitions.

From the above, FCOT has the lowest gearing at 29.1% while the other two REITs’ gearing levels are at above 35%.

Winner: FCOT

The best commercial REIT

FCOT has won two out of the three rounds, and thus qualifies as the best commercial REIT in my opinion. However, investors should look at other aspects of each of these REITs too, in order to determine if FCOT indeed qualifies as the best investment of the three. There is also the issue of why DPU has been flat year-on-year, and what management is doing to rectify the situation and enhance value for unitholders.

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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 and CapitaLand Limited. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.