CapitaLand Commercial Trust (SGX:C61U) is a SGD$6.75B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether CapitaLand Commercial Trust is a laggard or leader relative to its real estate sector peers. Check out our latest analysis for CapitaLand Commercial Trust
What’s the catalyst for CapitaLand Commercial Trust’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. Over the past year, the industry saw negative growth of -4.80%, underperforming the Singapore market growth of 7.76%. CapitaLand Commercial Trust leads the pack with its impressive earnings growth of over 100% last year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -57.13% compared to the wider REIT sector growth hovering next year.
Is CapitaLand Commercial Trust and the sector relatively cheap?
The REIT industry is trading at a PE ratio of 16x, relatively similar to the rest of the Singapore stock market PE of 14x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 7.02% on equities compared to the market’s 7.94%. On the stock-level, CapitaLand Commercial Trust is trading at a lower PE ratio of 9x, making it cheaper than the average REIT stock. In terms of returns, CapitaLand Commercial Trust generated 11.38% in the past year, which is 4.36% over the REIT sector.
What this means for you:
Are you a shareholder? CapitaLand Commercial Trust is a REIT industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto CapitaLand Commercial Trust as part of your portfolio, or maybe increase your holding. If you’re bearish on the stock, now may not be the best time to sell!