Real Estate Investment Trusts (REITs) are investment vehicles that pool investors capital to buy properties and collect rental income.
As such, it would be of interest for investors to study the property portfolios of each REIT to identify the underlying properties the REIT owns. Not all properties are equal, they are in different locations, command different rents, and have different clientele. To normalise the differences, we look at the capitalisation rate of each property, and assess the ‘quality’ of the properties. Also, since REITs have to pay out at least 90 percent of the net income as dividends, the capitalisation rate would offer a good indication of the dividend yield for unit holders.
Most investors may not understand capitalisation rate, but it is equivalent to earnings yield of stocks. If you take the reciprocal of it, it becomes the PE ratio.
For example, if a PE of a stock is 15, the earnings yield will be 6.7%. But instead of earnings yield, property investors call it capitalisation rate.
For your reference, I have gathered the following property portfolio of commercial REITs listed in Singapore and calculated the capitalisation rate and PE multiple for each property the REIT owns.
Disclaimer: Please do not rely solely on these numbers to make investment decisions. Although I have picked out numbers from the annual reports, mistakes may arise.
Suntec REIT
The capitalisation rate seems to be lower than most other REITs. There is a challenge to break down the capitalisation rate between the office and retail spaces. Office rents are lower than the retail rents. Moreover Suntec City had asset enhancements in the past few years and that could explain the lower rents.
Suntec REIT is a part owner of Marina Bay Financial Centre (MBFC) and One Raffles Quay. The latter is the worst performer in the portfolio.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Suntec City | Singapore | S$5,202m | S$172.7m | 3.3% | 30 |
| Marina Bay Financial Centre Tower 1 & 2 + Mall | Singapore | S$1,655m | S$76.4m | 4.6% | 22 |
| One Raffles Quay | Singapore | S$1,228m | S$30m | 2.4% | 41 |
| Park Mall | Singapore | S$411.8m | S$18.9m | 4.6% | 22 |
| 177 Pacific Highway | Australia | A$415m | - | - | - |
| Total (exlude 177 Pacific Highway) | Total (exlude 177 Pacific Highway) | S$8496.8m | S$298m | 3.5% | 29 |
CapitaMall Trust
CapitaMall Trust owns most of the most familiar shopping malls in Singapore. Their capitalisation rates are generally higher among the commercial REITs. This is because their portfolio are mainly retail, which command higher rents than office.
IMM’s high capitalisation rate should not be taken at face value as they have a mixture of spaces – office, retail and warehouse.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Tampines Mall | Singapore | S$922m | S$55m | 6.0% | 17 |
| Junction 8 | Singapore | S$662m | S$40.7m | 6.1% | 16 |
| Funan DigitaLife Mall | Singapore | S$361m | S$21.7m | 6.0% | 17 |
| IMM Building | Singapore | S$603m | S$50.3m | 8.3% | 12 |
| Plaza Singapura | Singapore | S$1224m | S$66.6m | 5.4% | 18 |
| Bugis Junction | Singapore | S$951m | S$53.9m | 5.7% | 18 |
| Sembawang Shopping Centre and Rivervale Mall | Singapore | S$222m | S$14.4m | 6.5% | 15 |
| Jcube | Singapore | S$335m | S$15.9m | 4.7% | 21 |
| Lot One Shoppers' Mall | Singapore | S$503m | S$29.5m | 5.9% | 17 |
| Bukit Panjang Plaza | Singapore | S$292m | S$17.1m | 5.9% | 17 |
| The Atrium@Orchard | Singapore | S$728m | S$37.8m | 5.2% | 19 |
| Clarke Quay | Singapore | S$371m | S$23.1m | 6.2% | 16 |
| Bugis+ | Singapore | S$337m | S$22.4m | 6.6% | 15 |
| Raffles City (40%) | Singapore | S$1243.8m | S$68.1m | 5.5% | 18 |
| Westgate (30%) | Singapore | S$328.2m | S$13.6m | 4.1% | 24 |
| Total | Total | S$9083m | S$503.1m | 5.8% | 18 |
Frasers Centrepoint Trust
You would realise the malls always end with a “point” and they are your heartland malls. Changi City Point is the latest mall and it did not have a full year income and hence we excluded it from the total capitalisation rate for Frasers Centrepoint Trust.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Causeway Point | Singapore | S$1058m | S$56.5m | 5.3% | 19 |
| Northpoint | Singapore | S$655m | S$36m | 5.5% | 18 |
| Bedok Point | Singapore | S$120m | S$6.2m | 5.2% | 19 |
| YewTee Point | Singapore | S$168m | S$9.6m | 5.7% | 18 |
| Anchorpoint | Singapore | S$93m | S$4.7m | 5.1% | 20 |
| Changi City Point (3 months of income) | Singapore | S$306m | S$5.2m | 1.7% | 59 |
| Total (exclude Changi City Point) | Total (exclude Changi City Point) | S$2094m | S$113m | 5.4% | 19 |
Starhill Global REIT
This is one of the favourite and most well known REITs among the investors whom I have met. They owned the prestigious Ngee Ann City and Wisma Atria in the Orchard road shopping belt.
Besides Singapore properties, the REIT has several Japanese properties which are performing badly.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Wisma Atria | Singapore | S$962m | S$49.3m | 5.1% | 20 |
| Ngee Ann City | SIngapore | S$1074m | S$53.4 | 5.0% | 20 |
| Starhill Gallery | Kuala Lumpur | S$262m | S$18.3m | 7.0% | 14 |
| Lot 10 | Kuala Lumpur | S$166m | S$11.1m | 6.7% | 15 |
| David Jones Building | Perth | S$150.6m | S$11.2m | 7.4% | 13 |
| Plaza Arcade | Perth | S$57.5m | S$3.5m | 6.1% | 16 |
| Renhe Spring Zongbei | Chengdu | S$81.7m | S$8.3m | 10.2% | 10 |
| Daikanyama | Tokyo | S$14.2m | S$0.3m | 2.1% | 47 |
| Ebisu Fort | Tokyo | S$37.3m | S$1.4m | 3.8% | 27 |
| Harajyuku Secondo | Tokyo | S$3.8m | S$0.1m | 2.6% | 23 |
| Holon L | Tokyo | S$11.7m | S$0.5m | 4.3% | 23 |
| Nakameguro | Tokyo | S$4.9m | S$0.2m | 4.1% | 25 |
| Roppongi Terzo | Tokyo | S$29.4m | S$0.3m | 1.0% | 98 |
| Total | Total | S$2855m | S$158m | 5.5% | 18 |
SPH REIT
This is the newest retail REIT and only have two properties in the portfolio.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Paragon | Singapore | S$2588m | S$136.7m | 5.3% | 19 |
| Clementi Mall | Singapore | S$571m | S$29.2m | 5.1% | 20 |
| Total | Total | S$3159m | S$165.9m | 5.3% | 19 |
CapitaComm Trust
CapitaGreen is a new building and has yet to contribute income to the REIT. Bugis Village has a fantastic capitalisation rate. The properties are different from the Grade A office as Bugis Village is a row of conservation shophouses opposite of Bugis Junction. A mix of retail shops at level 1 and office in other levels. However, it is not a big piece of property that could make a big difference to profits for the REIT.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Capital Tower | SIngapore | S$1309m | S$48.7m | 3.7% | 27 |
| Six Battery Road | Singapore | S$1330m | S$51.4m | 3.9% | 26 |
| One George Street | Singapore | S$975m | S$39.6m | 4.1% | 25 |
| Twenty Anson | Singapore | S$431m | S$17.2m | 4.0% | 25 |
| HSBC Building | Singapore | S$450m | S$20.3m | 4.5% | 22 |
| Golden Shoe Car Park | Singapore | S$141m | S$9.8m | 7.0% | 14 |
| Bugis Village | Singapore | S$55.4m | S$9.4m | 17.0% | 6 |
| Wilkie Edge | Singapore | S$191m | S$8.8m | 4.6% | 22 |
| Raffles City (60%) | Singapore | S$1865.7m | S$102.1m | 5.5% | 18 |
| CapitaGreen (40%) | Singapore | S$610.4m | -S$0.2m | 0.0% | NA |
| Total (exclude CapitaGreen) | Total (exclude CapitaGreen) | S$6748.1m | S$307.3m | 4.6% | 22 |
FrasersComm Trust
The commercial properties in Singapore are not as prominent and mostly office spaces. It is expected that the capitalisation rates are lower. The Australian properties are more bang for buck relatively.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| China Square Central | Singapore | S$579m | S$20.3m | 3.5% | 29 |
| 55 Market Street | Singapore | S$134.2m | S$3.7m | 2.8% | 36 |
| Alexandra Technopark | Singapore | S$503m | S$22.6m | 4.5% | 22 |
| Central Park | Perth | S$375m | S$24.5m | 6.5% | 15 |
| Caroline Chisholm Centre | Tuggeranong | S$233.2m | S$19.5m | 8.4% | 12 |
| Total | Total | S$1824.4m | S$90.6m | 5.0% | 20 |
Keppel REIT
Mainly office spaces and several Australian properties.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Ocean Financial Centre | Singapore | S$2560m | S$129.5m | 5.1% | 20 |
| Marina Bay Financial Centre (33.3%) [Cap rate lower because Tower 3 just acquired] | Singapore | S$2930m | S$59.3m | 2.0% | 49 |
| One Raffles Quay (33.3%) | Singapore | S$1228m | S$30m | 2.4% | 41 |
| Bugis Junction Towers | Singapore | S$527m | S$16.4m | 3.1% | 32 |
| 8 Chifley Square (50%) | Sydney | S$205.9m | S$11.4m | 5.5% | 18 |
| 77 King Street Office Tower | Sydney | S$139.9m | S$9.1m | 6.5% | 15 |
| 8 Exhibition Street (50%) | Melbourne | S$194.3m | S$13.1m | 6.7% | 15 |
| 275 George Street (50%) | Brisbane | S$213.7m | S$16.9m | 7.9% | 13 |
| Old Treasury Building Office Tower (50%) | Perth | S$197m | S$10.6m | 5.4% | 19 |
| Total (exclude MBFC) | Total (exclude MBFC) | S$5265.8m | S$237m | 4.5% | 22 |
MapleTree Comm Trust
Properties are concentrated in the Southern part of Singapore. A mixture of retail and office spaces with decent capitalisation rates.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| VivoCity | Singapore | S$2461m | S$135.6m | 5.5% | 18 |
| PSA Building | Singapore | S$735m | S$36.5m | 5.0% | 20 |
| Bank of America Merrill Lynch HarbourFront | Singapore | S$314m | S$13.7m | 4.4% | 23 |
| Total | Total | S$3510m | S$186m | 5.3% | 19 |
LippoMall Trust
This REIT offers exposure to retail properties in Indonesia. We can see that the capitalisation rates span a large range, which indicates that locations of the malls command very different rents.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Bandung Indah Plaza | Bandung | S$86m | S$9.7m | 11.3% | 9 |
| Cibubur Junction | Cibubur | S$52.5m | S$7.4m | 14.1% | 7 |
| Ekalokasari Plaza | Bogor | S$44m | S$1.1m | 2.5% | 40 |
| Gajah Mada Plaza | Jakarta | S$80m | S$5.8m | 7.2% | 14 |
| Istana Plaza | Bandung | S$78m | S$8.1m | 10.4% | 10 |
| Mal Lippo Cikarang | Cikarang | S$60.3m | S$5.8m | 9.6% | 10 |
| The Plaza Semanggi | Sudirman | S$143.2m | S$10.4m | 7.3% | 14 |
| Sun Plaza | Medan | S$179.3m | S$14.3m | 8.0% | 13 |
| Plaza Medan Fair | Medan | S$121.7m | S$11.8m | 9.7% | 10 |
| Pluit Village | Jakarta | S$139.2m | S$11.4m | 8.2% | 12 |
| Lippo Plaza Kramat Jati | Kramat Jati | S$61.2m | S$3.7m | 6.0% | 17 |
| Palembang Square Extension | Palembang | S$27.3m | S$2.8m | 10.3% | 10 |
| Tamini Square | Jakarta | S$25.2m | S$2.1m | 8.3% | 12 |
| Palembang Square | Palembang | S$68.4m | S$5.2m | 7.6% | 13 |
| Pejaten Village | Jakarta | S$102.2m | S$9.7m | 9.5% | 11 |
| Binjai Supermall | Binjai | S$28.4m | S$1.7m | 6.0% | 17 |
| Lippo Mall Kemang | Jakarta | S$388.4m | S$1.3m | 0.3% | 299 |
| Depok Town Square Units | Depok | S$22.1m | S$1.9m | 8.6% | 12 |
| Grand Palladium Units | Medan | S$20.1m | S$1.8m | 9.0% | 11 |
| Java Supermall Units | Semarang | S$20.5m | S$1.8m | 8.8% | 11 |
| Malang Town Square Units | Malang | S$22.2m | S$1.9m | 8.6% | 12 |
| Mall WTC Matahari Units | Tangerang | S$18.1m | S$1.6m | 8.8% | 11 |
| Metropolis Town Square Units | Tangerang | S$27.4m | S$2.4m | 8.8% | 11 |
| Plaza Madiun Units | Madiun | S$25.9m | S$2.3m | 8.9% | 11 |
| Total | Total | S$1841m | S$126m | 6.8% | 15 |
CapitaR China Trust
This REIT offers exposure to retail properties in China. Based on higher capitalisation rates, we can tell that the properties are more bang for buck in China than in Singapore. With the same amount of capital invested, you would likely get higher rents in China.
The reason (or excuse) for the under performance of CapitaMall Minzhongleyuan was due to a road closure leading to the mall.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| CapitaMall Xizhimen | Beijing | S$588m | S$38m | 6.5% | 15 |
| CapitaMall Wangjing | Beijing | S$434.4m | S$29.6m | 6.8% | 15 |
| CapitaMall Grand Canyon | Beijing | S$413m | S$17.8m | 4.3% | 23 |
| CapitaMall Anzhen | Beijing | S$206.2m | S$13.8m | 6.7% | 15 |
| CapitaMall Erqi | Henan | S$128.4m | S$8.3m | 6.5% | 15 |
| CapitaMall Minzhongleyuan | Hubei | S$119.5m | S$0.28m | 0.2% | 427 |
| CapitaMall Shuangjing | Beijing | S$118.2m | S$7.5m | 6.3% | 16 |
| CapitaMall Qibao | Shanghai | S$102.8m | S$8.5m | 8.3% | 12 |
| CapitaMall Saihan | Inner Mongolia | S$84.8m | S$6.2m | 7.3% | 14 |
| CapitaMall Wuhu | Anhui | S$55.1m | S$2.4m | 4.4% | 23 |
| Total | Total | S$2251m | S$132m | 5.9% | 17 |
MapleTree GCC Trust
This REIT has a property in Hong Kong and another in China.
| Property | Location | Valuation | Net Income | Capitalisation Rate | Earnings Multiple ("PE Ratio") |
|---|---|---|---|---|---|
| Festival Walk | Hong Kong | S$4078m | S$162.1m | 4.0% | 25 |
| Gateway Plaza | Beijing | S$1271m | S$67.2m | 5.3% | 19 |
| Total | Total | S$5349m | S$229m | 4.3% | 23 |
Conclusion
Finally we put together the capitalisation rates of the commercial REITs and make a comparison. Here are the insights we can draw:
- Capitalisation rates are based on property valuation and not stock prices. High capitalisation rates does not mean a good buy. It just means the properties and management are able to command higher rents. The REITs may already priced in this effect with a premium. The utility is that we tend to know which REITs have higher quality properties and management.
- LippoMalls and CapitaR China, being overseas, had higher capitalisation rates because of low property valuations.
- CapitaR China was doing better than MapleTree GCC, for similar locations and property types.
- CapitaMall Trust has the best capitalisation rates for Singapore commercial properties.
- Commercial REITs with more office properties command lower rent than commercial REITs with more retail properties.
| REIT | Capitalisation Rate | Earnings Multiple |
|---|---|---|
| LippoMall Trust | 6.8% | 15 |
| CapitaR China Trust | 5.9% | 17 |
| CapitaMall Trust | 5.8% | 18 |
| Starhill Global REIT | 5.5% | 18 |
| Frasers Centrepoint Trust | 5.4% | 19 |
| SPH REIT | 5.3% | 19 |
| MapleTreeComm Trust | 5.3% | 19 |
| FrasersComm Trust | 5.0% | 20 |
| CapitaComm Trust | 4.6% | 22 |
| Keppel REIT | 4.5% | 22 |
| MapleTree GCC | 4.3% | 22 |
| Suntec REIT | 3.5% | 29 |
Hi Alvin
I am just curious which REIT Sector did better in term of monetary returns, the Office, Retail, Industrial or Hospitality in 2015. Appreciate if you can give a summary of each sector performance. Thanks
Joseph