It’s another REIT earning season.
But with the global economic sentiment plus another Trump term, most if not all of us have concluded that it will be another tough few years for REITs.
The “REIT-vival” that we all anticipated might not be coming so soon.
But I get it, some of us who are here for the long term are trying to make a contrarian move – scooping up blue chip REITs at attractive prices. The interest rate regimes and economic cycles, as their names imply, go up and down, but they should not be detrimental to a great REIT’s long term potential and track record.
With a host of REITs reporting their latest quarterly results – some with their full FY results, I thought it would be interesting to profile some of Singapore’s blue chip REITs side by side, comparing to see which of them is the bluest of them all.
And talking about blue chips, the choices naturally skew towards the Temasek-linked ones – your CapitaLands and Mapletrees.
CapitaLand vs Keppel vs Mapletree REITs
As much as I would like to profile all REITs based on their full fiscal year results, sadly most of them do not share the same fiscal calendar. Thus, for REITs that are currently halfway through their current fiscal year, I thought it would be more representative to compare their Last Twelve Months (LTM) or Trailing Twelve Months (TTM) results.
There are many nuances, occurrences and aftermaths of REIT manager actions that bake a REITs financial results. So we will try to focus on net property income (NPI) growth YoY and distribution per unit (DPU) growth YoY. The blue chip REITs chosen will be CapitaLand Integrated Commercial Trust (SGX: C38U), Mapletree Industrial Trust (SGX: ME8U), Mapletree Logistics Trust (SGX: M44U), Mapletree Pan Asia Commercial Trust (SGX: N2IU), Keppel DC REIT (SGX: AJBU) and CapitaLand Ascendas REIT (SGX: A17U).
Since CapitaLand REITs and KDC shares the same fiscal year, I have used their full FY results for comparison. Mapletree REITs, on the other hand, are on their Q3 results, thus I used their TTM results for a fair side-by-side comparison.
At first glance, based purely on YoY DPU growth, CICT and MIT posted DPU growth of +1.2% and 1.3% YoY, respectively. The slight improvement might not be something worth shouting, but judging that most REITs are still affected by higher interest expense, it is a rather commendable feat.
KDC and CLAR eked out a DPU growth of +0.7% and +0.3% respectively. KDC might have grown its NPI by +6.3% YoY, but due to its enlarged weighted average shares listing due to its preferential offering, the accretive effects from its NPI has been just minute.
The REITs that bore the brunt the most would be MPACT and MLT. Both REITs saw their DPU shrink by -5.8% and -8.3% respectively.
Deeper dive into each REIT’s net property income
If we look purely at just the NPI growth, the top performer would be different. KDC charted a +6.3% YoY growth in NPI, topping the other REITs in comparison. But due to the dilutive effect of its preferential offering for its acquisition, the accretiveness on a DPU basis is just +0.7% YoY.
MIT, another REIT with data center exposure, also registered better NPI growth YoY at +2.68%. The growth was mainly attributable to the mixed-use facility in Tokyo acquired in October 2024, higher revenue from the completion of the second and third phases of fit-out works at Osaka Data Centre, and new leases and
renewals from its Singapore and North American portfolios.
CLAR also reported better NPI, as the once pure-play industrial and logistics REIT dipped its fingers deeper into DC acquisitions, while divesting other industrial and logistics properties.
CICT, in my opinion, provided the most solid NPI growth. The REIT divested 21 Collyer Quay, but had contributions from its 50% stake in ION Orchard. And with Galileo undergoing AEI, the CICT still managed to chalk in a NPI growth of +3.4% YoY.
On the other hand, MLT and MPACT saw their NPI down but for slightly different reasons. MLT bore the brunt of higher and unfavourable interest expenses, while MPACT saw its gross revenue dipped close to -5%. Mapletree Business City, one of MPACT’s prized properties, saw its gross revenue and NPI shrink YoY. Not to also mention, MPACT also divested Mapletree Anson, further impacting earnings.
From the comparison, I concluded a few lessons that can help make us better investors.
Lesson 1: Regulated and blue chip doesn’t mean sure-win investing
I always remember how investing gurus/REIT managers portray REITs as a separate class of equities. The additional regulations does make it more regulated, but that does not prevent REITs from running into problems.
Shit can still happen. We have just covered a list of REITs trading below their COVID lows – many of them were once market darlings for their lucrative high yields.
On the flip side, picking the blue chips also doesn’t translate to a “sure win” game plan. Not many REITs have an unbroken track record of growing their DPU YoY for more than 10 years.
Lesson 2: Acquisition & growth is non-negotiable
Contrary to what most people think, REITs need to keep growing their investment portfolio.
Yes, they may be paying out 90% of their earnings as distributions, but well-run properties would increase in valuation, thus lowering the REIT’s leverage. With more borrowing capacity, REITs need to continue to make shrewd investments to grow their NPI and DPU, and also NAV per unit as well.
While I agree that capital recycling is sometimes necessary, but if a REIT’s investment properties are decreasing and not increasing, it is very tough for NPI to grow the other way.
Lesson 3: It all boils down to per unit accretiveness
A REIT might be showing prudence yet hunger to grow its portfolio. But things can still go wrong if REIT managers’ interest does not align with minority unit holders. Some REIT managers are incentivised to buy and sell properties as they take a cut from the acquisition and divestment of properties.
They might then undergo preferential offerings or rights issues that might further dilute minority unit holders’ stakes.
What is the point of showing fantastic top line growth and growth in investment properties, when it does not translate to what matters most to retail investors — the DPU and NAV per unit growth?
Verdict
Hard core REIT investors might argue that a Singapore-centric REIT performs better than a geographically diversified one.
While on surface this looks to be the case for CICT, I would also remind all that CLAR, MIT and KDC have benefited from having data centres in the US and other markets outside Singapore.
CICT bested its peers, and its key retail and commercial properties in Singapore, Australia and Germany have definitely transformed the REIT into a resilient one that still shows a growth momentum.
On the other side of the coin, investors with a longer time horizon may argue that the underperforming blue chips this time round, could still outperform CICT when interest rates come down further in the next 2 years.
There is no right or wrong – how and when each REIT performs and the time required to do so, should jive with our investment horizon. I personally still have faith in the underperforming ones, but things will not be rosy for them in the near term.
[Not all REITs are created equal]
While REITs are a great form of income for investors, selecting poorly can pose risks.
Join Chris Ng, our early retirement masterclass trainer to find out how he has been living off his dividends for years, and his portfolio continues to pay him even through bear markets.
