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Which Industrial REIT Offers the Best Investment Prospects?

With the REITs’ reporting season just over, investors who are searching for a strong REIT to invest in may be drawn to the stable of industrial REITs listed on the local stock exchange. Industrial REITs may make great investments if their portfolios consist of quality, well-located assets with long land tenure. Consistently strong demand for industrial space should prop up rental rates and ensure positive rental reversion over time, leading to higher distribution per unit (DPU) for investors.

I decided to look at which industrial REIT offers the best investment prospects, choosing from five REITs that are well-known in the industrial space and have good historical track records. They are ESR-REIT (SGX: J91U), Mapletree Logistics Trust (SGX: M44U), Mapletree Industrial Trust (SGX: ME8U), AIMS APAC REIT (SGX: O5RU), or AAREIT, and Cache Logistics Trust (SGX: K2LU).

Here are three aspects I considered in order to determine which of these REITs offers the best investment prospects.

1. DPU growth

The first aspect is year-on-year growth in the DPU. This indicates if the REIT is able to grow DPU for unitholders, and it’s a measure of overall growth for the REIT. This may come about through organic growth such as asset enhancement initiatives, or through yield-accretive acquisitions that boost the REIT’s asset base and net property income.

From the table, MLT and MIT have the strongest year-on-year DPU growth of 3.5% and 3.3%, respectively, while Cache’s DPU suffered a year-on-year decline of 6.9%.

2. Dividend yield

While DPU growth is important, it’s also important to assess what the dividend yield of the REIT is. This is the return investors will be getting from the REIT, assuming no capital appreciation in the value of the shares. Generally, stronger and more reputable REITs tend to trade at lower (dividend) yields. Investors should also note that as yield is a function of share price, there are times when the share price may be pricing in a potential decline in DPU, which is why annualised dividend yield seems higher.

MLT and MIT both have the lowest yields, and this is in line with them having a strong sponsor in Mapletree Investments Pte Ltd. MLT and MIT also both displayed year-on-year growth in DPU, and the share price may be reflecting better prospects moving forward, thus depressing the yield.

3. Valuation

The final aspect is valuation, measured using the price-to-book ratio for each REIT. Unsurprisingly, the two most expensive REITs are MLT and MIT, while the other three are trading just slightly above their net asset value. This again alludes to the quality of the REITs as their share prices are pushed up in anticipation of higher AUM levels or increasing DPU.

The most attractive REIT

This may seem counterintuitive, but I believe the most attractive REITs are those that display consistent and sustainable DPU increases, do not trade at too high a prospective yield, and also offer clear strategies for long-term growth. As mentioned, “cheaper” REITs with higher dividend yields may simply be pricing in DPU declines moving forward. MLT and MIT, therefore, qualify as being the strongest industrial REITs out of the bunch.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Mapletree Logistics Trust and Mapletree Industrial Trust. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.