What You Should Know About Mapletree Industrial Trust (SGX: ME8U) At Its Share Price of S$2.77
Sudhan P●
Right now, Mapletree Industrial Trust (SGX: ME8U) share price (technically known as unit price for REITs) is at S$2.77.
Does the REIT look like a buy at its current unit price?
Let’s explore using my 10-step guide to pick the best Singapore REITs.
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- Distribution Yield of Above 5%
Business Background
Before we go into an analysis of Mapletree Industrial Trust, let’s take a quick look at what its business is about.
Mapletree Industrial Trust is a REIT with a portfolio of 87 industrial properties in Singapore and 17 data centres in North America (through the joint ventures with its sponsor, Mapletree Investments), as of 31 December 2019. The properties in Singapore range from hi-tech buildings to light industrial buildings.
On 14 January 2020, Mapletree Industrial Trust completed the acquisition of 10 more data centres in North America, bringing the total number of data centres it owns to 27.
Sponsor Mapletree Investments owns 29.2% of Mapletree Industrial Trust.
1. Gross Revenue and Net Property Income (NPI) Check
Check for: Increasing gross revenue and NPI
Mapletree Industrial Trust has a financial year that ends on 31 March each year.
The following table showcases the REIT’s gross revenue and NPI growth over the last couple of years:
| FY14/15 | FY15/16 | FY16/17 | FY17/18 | FY18/19 | Compound Annual Growth Rate (CAGR) | |
|---|---|---|---|---|---|---|
| Gross revenue (S$' million) | 313.9 | 331.6 | 340.6 | 363.2 | 376.1 | 4.6% |
| Net property income (S$' million) | 228.6 | 245.1 | 256.8 | 277.6 | 287.8 | 5.9% |
It’s nice to see both gross revenue and NPI growing steadily each year from FY14/15 to FY18/19.
Verdict: Pass
2. Distribution Per Unit (DPU) Check
Check for: Increasing DPU
Mapletree Industrial Trust’s DPU has also been increasing from FY14/15 to FY18/19.
| FY14/15 | FY15/16 | FY16/17 | FY17/18 | FY18/19 | CAGR | |
|---|---|---|---|---|---|---|
| Distribution per unit (Singapore cents) | 10.43 | 11.15 | 11.39 | 11.75 | 12.16 | 3.9% |
Over the longer term, since its listing in October 2010, Mapletree Industrial Trust’s DPU has risen from 1.52 Singapore cents.
Verdict: Pass
3. Property Yield Check
Check for: Property yield of between 5% and 9%
For FY18/19, Mapletree Industrial Trust had an NPI of S$287.8 million and a portfolio value of S$4.34 billion. The figures translate to a property yield of 6.6%.
Mapletree Industrial Trust passes this criterion with flying colours.
Verdict: Pass
4. Gearing Ratio Check
Check for: Gearing ratio below 40%
As of 31 December 2019, Mapletree Industrial Trust’s gearing ratio stood at 34.1%, which is well below the regulatory limit of 45% and below my threshold of 40%.
Verdict: Pass
5. Interest Coverage Ratio Check
Check for: Interest coverage ratio above 5 times
Mapletree Industrial Trust’s interest coverage ratio was 6.8 times, as of end-2019, and that’s well above 5 times.
Verdict: Pass
6. Portfolio Occupancy Rate Check
Check for: Healthy portfolio occupancy rate
Mapletree Industrial Trust’s overall portfolio occupancy for the third quarter of FY19/20 rose to 90.9%, compared to 90.5% in the preceding quarter.
The increase was due to higher occupancy at both Mapletree Industrial Trust’s Singapore portfolio and US portfolio.
The Singapore portfolio saw its occupancy increase to 90.5%, up from 90.2% in the second quarter of FY19/20.
Meanwhile, the US portfolio saw an increase in occupancy rate from 97.4% in 2Q FY19/20 to 97.8% in 3Q FY19/20.
Verdict: Pass
7. Rental Reversion Check
Check for: Positive rental reversions
Mapletree Industrial Trust’s Singapore portfolio gross rental rate has grown over the years, and for its latest quarter, it was 3.9% higher year-on-year.
The data centres portfolio comes with rental escalations, so there’s organic growth for the REIT from this.
Verdict: Pass
8. Growth Prospects Check
In its FY18/19 annual report, Mapletree Industrial Trust’s manager said the following about the US data centre sector:
“Demand for data centre space in the United States remained strong, backed by growth in data consumption as well as increasing adoption of cloud services by businesses and consumers. These will underpin the stability of revenue contribution from the US Portfolio.”
On that front, the REIT has expanded its footprint in the North America data centre space with the acquisition of 13 data centres.
Mapletree Industrial Trust’s sponsor has granted the REIT the right of first refusal for its remaining stake in the data centres, providing significant investment pipeline.
In Singapore, Mapletree Industrial Trust is embarking on its largest redevelopment project at Kolam Ayer, which is expected to be completed in the second half of 2022. The built-to-suit facility is 100% committed to a global medical device company headquartered in Germany. The initial lease term is 15 years with annual rental increases.
For FY19/20, Mapletree Industrial Trust could see higher gross revenue as compared to a year back due to new revenue contributions from 18 Tai Seng, 30A Kallang Place, Mapletree Sunview 1 and 7 Tai Seng Drive.
Verdict: Pass
9. Price-to-Book Ratio Check
Check for: Acceptable price-to-book ratio
At Mapletree Industrial Trust’s unit price of S$2.77, it is valued at a PB ratio of 1.8x.
Over the past five years, its average PB ratio stood at 1.3x.
With the current PB ratio above its mean, Mapletree Industrial Trust looks expensive to me.
Verdict: Fail
10. Distribution Yield Check
Check for: Distribution yield to be above 5%
At Mapletree Industrial Trust’s unit price of S$2.77, it has a distribution yield of 4.5%, which is low in my opinion.
Verdict: Fail
The Final Verdict
Mapletree Industrial Trust has a final score of 8/10.
I like Mapletree Industrial Trust for its:
- Growing gross revenue, NPI and DPU over the years;
- Strong balance sheet;
- High occupancy rate; and
- Long runway for growth.
However, as we have seen with many great Singapore REITs such as Ascendas REIT, CapitaLand Mall Trust, and Mapletree Logistics Trust, they have high valuations, and Mapletree Industrial Trust is no exception.
Therefore, I’m placing Mapletree Industrial Trust on my watchlist.
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Stock Discussion on Mapletree Industrial Trust
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
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