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Willie Keng, CFA

Willie Keng, CFA

Chief Editor

What People Are Forgetting About Mapletree Industrial Trust

Mapletree Industrial Trust (SGX:ME8U) is a hot favourite. But one thing that the market is ignoring is can prove fatal to all investors.
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Mapletree Industrial Trust (SGX:ME8U) is getting into the unstoppable wave of the 5G revolution. 

Now, 5G or fifth-generation wireless tech is often portrayed as the golden road — to the “internet of things”, self-driving cars, cloud computing and smartphone devices. 

You see, the 5G revolution requires more data than ever before to run these technologies. 

And what’s more is you need to store these massive data in a specialized, physical space — so people all over the world can easily access it. 

These spaces are called data centres.

Data centres — usually only one or two big tenants — are used to house huge rows of computer servers. 

These servers store data such as your videos, pictures, software you upload onto the internet. 

Is this Singapore REIT expensive?

And Mapletree Industrial Trust’s goal is to own many, many data centres across the world’s biggest cities. 

It recently paid S$286 million for another data centre in Virginia, the US. 

Today, this Singapore REIT has 27 data centres in North America. You can learn more about Mapletree Industrial Trust here.

Check out this other fast-growing Singapore Industrial REIT also buying data centres. 

Data centres are a hot trend now. That’s why Mapletree Industrial shares keep going higher. 

Today, Mapletree Industrial Trust is one of the best performing Singapore REITs — shares rose 38% over the last three years. 

Its shares rose so much its market cap of S$6.6 billion is far larger than its book value today. 

You’d say its “price-to-book” ratio trades at a premium, because people think there’s a lot of growth potential in data centres.

Book value is the net worth of a company, or REIT. You simply calculate book value by taking total assets minus all a REIT’s liabilities. 

When the stock price is more than the book value of a REIT, the REIT’s price/book (P/B) ratio trades at a premium or more than 1x.

In other words, you’re paying more for Mapletree Industrial Trust than what it’s worthBut here’s the thing. Not all of its properties are data centres.

What many people are forgetting about Mapletree Industrial Trust

What many people ignore is 60% of  Mapletree Industrial Trust assets are still in “last-generation” industrial properties. Where their rental growth might be slower than data centres. 

31% of this Singapore REIT’s total properties are in flatted factories, stack-up/ramp-up buildings and light industrial buildings. 

These older industrial buildings command a lower occupancy rate of 90% and below. 

They tend to have a stable, but lower rent income. And are leased to more cyclical SME tenants — electronics manufacturing, precision engineering, food and beverages, machinery products. 

With the ongoing Covid-19 pandemic, improving rent from these tenants will still be a challenge. 

I believe this growth from data centres is going to be dragged down by its older, traditional properties. 

Readers have asked me, would I buy Mapletree Industrial Trust is a good buy right now? I think, even after the recent price correction of 15%, I wouldn’t pay this price. 

Diligence members can access my latest Members Q&A Webcast (check out 15:18 min, I go deeper into Mapletree Industrial Trust and where the “right price” is).

The market right now, is forgetting Mapletree Industrial Trusts older properties. 

Source: Yahoo! Finance 

Having said that, Mapletree Industrial is still a major industrial REIT. It owns 87 Singapore properties and over 20 US properties. 

40 of its properties are in the fast growing data centres.

 

Mapletree Industrial Trust is still one step ahead of the REIT market

In its latest third quarter financial results, its gross revenues grew a massive 19.7% year on year to S$123 million, while its distributable income grew 11% to S$81 million. This was due to income from its 14 data centres in the US. 

Mapletree Industrial Trust knows data centres’ potential. The fact, it’s redeveloping some of its older industrial buildings — this tells me it’s already moving away from traditional industrial properties. 

For example, its Kolam Ayer 2 cluster along Kallang Way will be refitted into a high-tech industry with a S$263 million renovation cost. These are well located in established industrial estates and business parks — served by good transportation networks. 

Since listing, Mapletree Industrial Trust has rewarded shareholders well. It grew distribution per unit (DPU) from 8.41 cents per share in 2012 to 12.24 cents per share in 2020. 

Even during the pandemic last year, Mapletree Industrial Trust maintained its dividend growth. 

I like Mapletree Industrial Trust, along with some of the best Singapore REITs here. 

But right now, this Singapore REIT has yet to be “attractively priced”. 

That’s why I’m keeping my money away from Mapletree Industrial Trust for now. 

As a long term dividend growth investor, I always look at the total return of a stock, both its capital gains and income. 

I don’t want to end up collecting growing dividends, but the share price keeps falling. 

Knowing when to buy and sell is always important

Sometimes, investing can be simple. 

Always here for you, 
Willie Keng, CFA
Founder, Dividend Titan

Editor’s Notes: I invite you to join our growing community simply by subscribing for our completely FREE email list. In it, you’ll received some of our best ideas about how to protect and grow your wealth safely. 

Willie Keng, CFA

Willie Keng, CFA is the founder of Dividend Titan, a financial publication for self-managed investors. A former research analyst for top private banks, Willie today runs his own consulting firm. Some of his clients include asset managers and family offices. Willie has a deep passion for helping everyday investors take control of their financial future. And has spent over 10,000 hours researching, analyzing and recommending investment ideas.

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