In Singapore, investors love passive income from the stock market. Primarily, this comes from dividends and what kinds of companies usually pay these dividends?
On the SGX, it tends to be Singapore real estate investment trusts (REITs). That’s because they are required by law to pay out 90% of their earnings as dividends to shareholders.
Naturally, that creates a reliable and consistent passive income stream for dividend investors who want exposure to real estate.
One of the bigger and more exciting sub-sectors of the REIT market in recent years has been data centres.
Fortunately, Singapore has a couple of data centre REITs to choose from, while newer ones have also listed in recent years.
So, for investors, two of the biggest data centre REITs are Keppel DC REIT (SGX: AJBU) and Mapletree Industrial Trust (SGX: ME8U).
But which one is the better buy for REIT and dividend investors? Let’s find out.
DPU growth
As I’ve written about previously, distribution per unit (DPU) growth is the litmus test of how much value a REIT is adding to shareholders’ portfolios.
That’s because it’s a number that doesn’t lie. Ideally, we want to see this DPU number grow over time.
For Keppel DC REIT, it only listed in December 2014. Therefore, it has a relatively short DPU history. Yet for FY2015 (on a pro-rated basis), Keppel DC REIT paid out a DPU of 6.49 Singapore cents.
For FY2022, Keppel DC REIT paid out a total DPU of 10.21 Singapore cents. That means its DPU’s compound annual growth rate (CAGR) was 6.7% over that seven-year period.
So, what about Mapletree Industrial Trust? It isn’t a pure-play data centre REIT but has been accumulating data centres in North America, as part of its portfolio, since 2017.
The REIT paid out a DPU of 10.43 Singapore cents for FY2014/2015 (for the 12 months ending 31 March 2015).
For its latest full-year earnings (for FY2021/2022), Mapletree Industrial Trust recorded a DPU of 13.8 Singapore cents.
That means over that seven-year period its DPU delivered a CAGR of 4.1%.
Winner: Keppel DC REIT
Gearing ratio and cost of debt
In these times of rising interest rates, it’s important that any REITs investors buy have a relatively strong debt profile.
That includes having a reasonable gearing ratio and a low cost of debt to ensure it’s not so impacted by rising borrowing costs.
In Keppel DC REIT’s case, it had a gearing ratio of 36.4% and an average cost of debt of 2.2% as of 31 December 2022.
Meanwhile, Mapletree Industrial Trust had a gearing ratio of 37.2% and a weighted average all-in funding cost for the quarter of 3.3%, as of 31 December 2022.
Winner: Keppel DC REIT
Valuation
Obviously, when we buy REITs, we should also take their valuation into account.
Valuing REITs typically means looking at their price-to-book (PB) ratio given they’re dealing with “real” assets, such as property.
In this case, Mapletree Industrial Trust shares are currently trading at a PB ratio of 1.2 times. Meanwhile, Keppel DC REIT shares trade for a higher PB ratio of 1.5 times.
Winner: Mapletree Industrial Trust
Stronger growth and better debt metrics
Overall, Keppel DC REIT appears to be the better buy right now for Singapore dividend and REIT investors.
That’s based on its superior DPU growth and more robust balance sheet, both of which will prove valuable in a rising interest rate and inflationary environment.
The broader data centre space, though, continues to show strength and both Keppel DC REIT and Mapletree Industrial Trust offer investors 12-month forward dividend yields of over 5%.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Mapletree Industrial Trust.
