Which office REIT manager creates the best value?

CapitaLand Commerical Trust offers the best performance at the lowest cost to unitholders, according Maybank Kim Eng.

“A good asset manager should be able to create value for unitholders by acquiring undervalued assets, divesting overvalued assets and improving their underlaying property income to achieve higher asset value,” says analyst Derrick Heng in a Monday report.

To reflect the track record of managers, Heng calculated the IRR (internal rate of return) for key properties in the REIT between 2010 and 2016 by comparing the difference in valuation and estimated the level of cashflows in that seven-year period.

For properties acquired and divested over this period, sale and purchase prices are used. In addition, for properties that underwent major asset enhancement initiatives (AEI), UOB apportioned the estimated capex spent over the period of renovation.

Heng then aggregated these figures to calculate an overall IRR achieved for each REIT. He also provided a separate IRR figure that strips out the impact of rental support provided to the REITs.

“We overlay the performance measures with the expense ratios for the REITs in 2016. We define expense ratio as total asset management fees paid to the managers and other trust expenses incurred in 2016 as a percentage of total assets under management (AUM),” explains Heng.

Units of CapitaLand Commerical Trust are trading 2 cents higher at $1.66.

This article originally appeared on The Edge Markets Singapore

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