Should We Invest In Mapletree Industrial Trust?

As at 12 October 2018, Mapletree Industrial Trust (MIT) is trading at S$ 1.92 an unit. It offers yet another opportunity for investors to acquire MIT’s units at S$ 1.90 levels over the past 12 months.

    

Source: Google Finance

So, should we consider or dismiss an investment into MIT at S$ 1.92 an unit? In this article, I’ll summarize my recent findings on MIT and share a few tools that are useful to value MIT at its current price. Thus, here are 7 key things that you need to know about MIT before investing.

#1: MIT’s Current Portfolio

Key Statistics:

Number of Properties – 100

Total Net Lettable Area (NLA) – 18.2 million sq. ft.

Tenant Base – >2,000

MIT derives income from a portfolio of 86 industrial properties situated across Singapore and 40% interest in Mapletree Redwood Data Centre Trust (MRDCT) which owns 14 data centres located across the United States. It enjoys stability in income from having a base in excess of 2,000 tenants where MIT’s 10 largest tenants account for 25.9% of its total gross rental income. Here is the list of the top 10 tenants and its percentage of contribution to MIT’s gross rental income:

Source: MIT’s Financial Results Q1 2019

#2: Financial Results

Key Statistics:

Gross Revenue – S$ 363.2 million (2018)

Distributable Income – S$ 215.8 million (2018)

Distribution per Unit (DPU) – 11.75 cents (2018)

MIT has delivered consistent growth in gross revenue and distributable income over the last 6 years. Gross revenue has grown from S$ 246.3 million in 2012 to S$ 363.2 million in 2018. It had led to rising distributable income from S$ 171.3 million in 2012 to S$ 215.8 million in 2018. This had resulted in growth in MIT’s DPU from 9.24 cents in 2012 to 11.75 cents in 2018.

Source: Annual Reports of Mapletree Industrial Trust

#3: Slight Dip in Occupancy Rate

Key Statistics:

Occupancy Rate – 87.8% (Q1 2019)

Gross Rental Rate – S$ 2.02 per sq. ft. per month

As at 30 June 2018, MIT has recorded 87.8% in portfolio occupancy rate, a drop from 89.6% in the previous quarter. By taking a longer view, I discover that MIT has experienced a continuous drop in occupancy rate since its high of 95.5% for Q1 2014. Fortunately, it has achieved steady growth in gross rental rate, hence, outweighing the negative impact of lower occupancy rates during the period. It enables MIT to deliver growth in its financial results over the last 5 years.

Source: MIT’s Financial Results Q1 2019

#4: Growth Driver 1 – Global Data Centres

Key Statistics:

40% Stake in Mapletree Redwood Data Centre Trust (MRDCT)
Number of Properties: 14 Data Centres

In 2017, MIT had invested US$ 300 million to acquire 40% stake in MRDCT and thus, expanded its geographical footprint to the United States. The acquisition is viewed to be strategic as MIT intends to participate in the worldwide growth of data centre space center which is projected to be at a CAGR of 5.2% per year from 2017 to 2022.

In Q1 2019, MIT has made S$ 4.33 million in profits from MRDCT. It would add to MIT’s income stability as MRDCT has Weighted Average Lease Expiry (WALE) of 5.8 years. MIT has also been granted by its sponsor – Mapletree Investments Pte Ltd (MIPL) a Rights of First Refusal (ROFR) to acquire MIPL’s 60% interest in MRDCT in the future.

#5: Growth Driver 2 – Asset Enhancement Initiatives (AEI)

Here are the recent updates on MIT’s AEI:

AEI #1 – Mapletree Sunview 1

On 13 July 2018, MIT has completed a built-to-suit (BTS) data centre known as the Mapletree Sunview 1. Subsequently, it is leased to an established operator of data centre under an initial lease term of 10+ years with rental escalation & renewal options.

AEI #2 – 7 Tai Seng Drive

On 27 July 2018, MIT has completed the acquisition of 7 Tai Seng Drive with an intention to upgrade it into a high-specification building. The estimated cost of acquiring and upgrading of 7 Tai Seng Drive is S$ 95 million and is scheduled to complete by 2H 2019. Upon completion, it would be leased to an ICT company for an initial term of 25 years with annual rental escalations.

#6: Portfolio Lease Expiry

Key Statistics:

Singapore Portfolio – 3.5 Years

U.S. Portfolio – 5.8 Years

MIT’s Overall Portfolio – 3.7 Years

As at 30 June 2018, MIT has weighted average lease expiry (WALE) of 3.7 years. It is boosted marginally by a long WALE of 5.8 years from MRDCT. At present, a total of 40.7% of its leases would begin to expire in financial year (FY) 2021 and beyond. They would provide MIT’s unitholders income over the long-term.

Source: MIT’s Financial Results Q1 2019

#7: Valuation

Key Statistics:

Gross Dividend Yield – 6.12% (12 October 2018)

P/B Ratio – 1.30 (12 October 2018)

There are two key valuation tools to assess MIT at S$ 1.92 an unit.

Tool #1: Gross Dividend Yields

In 2018, MIT has paid out 11.75 cents in DPU. Thus, its gross dividend yield is 6.12% a year. It is lower than its 5-Year Average of 6.61% a year from 2014 to 2018.

Tool #2: P/B Ratio

As at 30 June 2018, MIT has net asset value (NAV) per unit of S$ 1.48. Thus, its P/B Ratio is 1.30, which is higher than its 5-Year Average of 1.23 from 2014 to 2018.

VIA’s Verdict

Back to the 64,000 question: ‘Should I invest in MIT at S$ 1.92?’

I won’t tell how you should invest your money. Instead, I would end this article with a few questions as a guide to help you decide what you could do with MIT presently:

1. Is a gross dividend yield of 6.12% a year attractive to you?
2. Will you buy more / sell units of MIT if it drops below S$ 1.90 levels?
3. Are you concerned with the fall in MIT’s occupancy rate?
4. Do you think MIT’s growth drivers are sufficient to offset the ongoing fall in its occupancy rate?
5. Are they better REITs or Stocks that you can find which provide better returns to you as an investor?

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