The Motley Fool

Better Buy: CapitaLand Commercial Trust vs. Mapletree Commercial Trust

CapitaLand Commercial Trust (SGX: C61U) and Mapletree Commercial Trust (SGX: N2IU) are two of the largest Singapore real estate investment trusts (REITs)  focusing on commercial properties. Both REITs have seen strong share price appreciation in the last 12 months – in excess of 25% during that period. For investors who are seeking to invest in commercial REIT, which of two is a better buy now?

Personally, there is no clear answer to the question. Still, I’ll explore two aspects of the REITs to help us make our decision.

Distribution per unit (DPU) track record

First, let’s compare the DPU track record of both REITs in the last five years. The idea is to see which REIT did better in growing its DPU over that time period.

Let’s begin with CapitaLand Commercial Trust. From FY2013 to FY2018, CapitaLand Commercial Trust grew its DPU from 8.14 cents to 8.70 cents. In other words, it was up by 6.9% during that period, giving investors a compounded annual growth rate (CAGR) of 1.3%.

And now for Mapletree Commercial Trust. In the same period, Mapletree Commercial Trust grew its DPU from 8.00 cents to 9.14 cents. In other words, DPU was up by 14.3% during that period, giving investors a CAGR of 2.7%.

Both REITs grew DPU marginally over the last five years. Among the two, Mapletree Commercial Trust came out ahead with its higher growth rate.

Winner: Mapletree Commercial Trust

Valuation

The next aspect to focus on is valuation. Here, I’ll use two metrics which are the price to book (PB) ratio and distribution yield to help us in our assessment.

Let’s begin with the PB ratio. CapitaLand Commercial Trust and Mapletree Commercial Trust have PB ratios of 1.2 and 1.3, respectively. The lower PB ratio for CapitaLand Commercial Trust suggests that it has a slightly lower valuation.

And now for the distribution yield. CapitaLand Commercial Trust and Mapletree Commercial Trust have distribution yields of 4.0% and 4.5%, respectively. The higher a REIT’s yield is, the lower its valuation. Thus, we can see that Mapletree Commercial Trust has a lower valuation based on the distribution yield.

This one is a bit closer but for investors who prefer a higher distribution yield, Mapletree Commercial Trust is the better choice here.

Winner: Mapletree Commercial Trust

Conclusion

In sum, Mapletree Commercial Trust comes out ahead of CapitaLand Commercial Trust due to its higher DPU growth rate as well as higher distribution yield. Still, both REITs are trading at rather expensive valuations. Thus, investors are reminded to research the REITs’ fundamentals before buying their stocks.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of CapitaLand Commercial Trust and Mapletree Commercial Trust.