The Motley Fool

Better Buy: Frasers Centrepoint Trust vs. CapitaLand Mall Trust

Frasers Centrepoint Trust (SGX: J69U) and CapitaLand Mall Trust (SGX: C38U) are both real estate investment trusts (REITs) that own a portfolio of shopping malls in Singapore. Over the last five years, CapitaLand Mall Trust has seen its share price rise 31.5%, while Frasers Centrepoint Trust’s shares have clocked a gain of 37.2%.

Both companies have given long-term investors plenty to smile about when we consider that each of them have paid out consistent dividends throughout the years. Coupled with the fact that the SPDR Straits Times Index ETF, a low-cost exchange-traded fund that tracks Singapore’s stock market barometer, the Straits Times Index, delivered a cumulative gain of just 15.4% over the same period.

But which retail mall makes the better investment over the next five years? Let’s take a look.

An introduction to their businesses

On the surface, it seems that Frasers Centrepoint Trust and CapitaLand Mall Trust have fairly similar businesses, since both invest in shopping malls in Singapore. But there are some important differences to appreciate.

Frasers Centrepoint Trust’s portfolio comprises six suburban malls (plus a one-third stake in a seventh mall) located near residential districts. It also owns a stake in PGIM Real Estate Asia Retail Fund and Hektar REIT, two other retail real estate funds that own malls outside of Singapore. Its total assets worth valued at S$3.2 billion as of 30 June 2019.

On the other hand, CapitaLand Mall Trust’s assets are located all over Singapore, including assets located centrally such as Bugis Junction and Funan, and assets located in residential districts such as Tampines Mall and Bedok Mall.

Its portfolio value is also slightly larger than Frasers Centrepoint Trust, with total assets valued at S$11.8 billion as of 30 June 2019.

Track record

Being REITs, the best gauge of the duo’s ability to increase shareholder value is their ability to grow distribution per unit (DPU). 

Frasers Centrepoint Trust’s DPU has increased progressively from 11.187 Singapore cents per unit in FY2014 to 12.015 Singapore cents per unit in FY2018, which translates to an annualised growth rate of 1.4%.

CapitaLand Mall Trust’s DPU has increased from 10.84 Singapore cents in 2014 to 11.5 Singapore cents in 2018, equivalent to an annualised growth rate of 1.2%.

The difference between the pair is extremely thin and is negligible.

Winner: It’s a tie

Future growth opportunities

There are many factors that will impact a REIT’s ability to grow its DPU.

On one hand, CapitaLand Mall Trust recently opened Funan in June, which will contribute to rental income starting in the third quarter of 2019. It also boasts a positive 1.8% rental reversion rate in the second quarter of 2019 and low aggregate leverage of 34.4%, giving it the financial muscle to make debt-funded acquisitions.

Frasers Centrepoint is no pushover either. It acquired a one-third interest in Waterway Point on 11 July, which is expected to be yield-accretive. It also had a 3.1% rental reversion rate in the third quarter of 2019 and boasts a low gearing of 23.5% as of 30 June 2019 (before the purchase of the one-third stake of Waterway point was made).

All things considered, it is difficult to say which REIT will be able to grow its DPU at a faster rate. Both have their individual merits and growth opportunities but given CapitaLand Mall Trust will benefit quite significantly from the opening of Funan, its visible growth opportunity seems slightly better than Frasers Centrepoint Trust.

Winner: CapitaLand Mall Trust

Valuation

Given the importance of distribution when gauging the underlying economic values of a REIT, a useful valuation metric is the distribution yield.

Based on historical distributions and unit price as of the time of writing, Frasers Centrepoint Trust had a distribution yield of 4.5%, while CapitaLand Mall Trust matches that with a trailing yield of 4.5% as well.

Winner: It’s a tie

Final call

Both REITs have bright futures ahead and solid track records. In addition, from a valuation standpoint, both REITs aren’t far off from each other.

But with the opening of Funan, CapitaLand Mall Trust is likely to see a steeper increase in DPU in the next few years. So although I believe both REITs can continue to deliver good returns over the next five years, CapitaLand Mall Trust seems to be the better choice between the two for now.

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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 Frasers Centrepoint Trust and CapitaLand Mall Trust. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.