Industrial REIT with local properties tops sector; concern about outlook

SINGAPORE (Nov 1): The metrics that The Edge Singapore used to compare the real estate investment trusts that qualify for the Billion Dollar Club are somewhat different from those we used for ordinary companies. Instead of looking at pre-tax profit growth over three years, we looked at net profit growth over the period. We calculated return on equity (ROE) by dividing distributable income by shareholders’ equity. The reason is that REITs are structured to maximise their distributable income, and managed to make the most of their tax breaks.

On that basis, Mapletree Industrial Trust (MIT) came out tops. Not only did it have the highest net profit growth and weighted ROE over the three years to 2015, but it also delivered the highest return to investors. The second-best performer was CapitaLand Mall Trust, the first REIT to be listed in the local market, and the largest by market value and assets. CMT achieved only middling scores for ROE and total return, but it had a high score for net profit growth.

Yield-oriented investments have been popular with investors since the global financial crisis, as interest rates were driven to exceptionally low levels. However, investors have been concerned about the underlying fundamentals for most segments of the commercial property sector. For instance, soft economic growth and the growing tendency for people to shop online are creating challenges for REITs that own shopping malls. Local office property REITs have been affected by a surge in supply of new space over the past couple of years. Meanwhile, soft commodity prices, the slowdown in China and weak international trade are weighing on REITs that own industrial properties.

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