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Mapletree Industrial Trust: A simple analysis.

Sunday, May 1, 2011


I looked at the results of Mapletree Industrial Trust (MIT) briefly when it was announced a few days ago. It didn't interest me much and so, I did not blog about it. Someone asked me a couple of days ago what I thought of it and if I would invest in the trust now.

I like industrial properties S-REITs because they probably offer a more stable source of passive income compared to office S-REITs or retail S-REITs. At least, in theory, that's how it is. I also like First REIT which is into healthcare properties. I usually choose to invest in REITs with relatively higher yields compared to their peers in the same sector. After all, investing for income, distribution yield has to be a very important consideration.

MIT's distribution yield, at the last done price of $1.08 per unit and an annualised DPU of 7.72c, is about 7.15%. I cannot say I am excited by the yield. Investing in AIMS AMP Capital Industrial REIT, Cache Logistics Trust or Sabana REIT would give a higher distribution yield.

At $1.08, MIT is also trading above its NAV/unit of 95c (a rich premium of 13.7%). MIT has a gearing level of 36.1% and an interest cover ratio of 6.6x. Occupancy rate is at 93.2%. So, we could possibly see distributable income increasing again in future if occupancy rate improves. This could bump up DPU by a few % but distribution yield would probably not surpass 7.8% even so (ceteris paribus).

Some numbers for easy comparison:

AIMS AMP Capital Industrial REIT (20.5c):
Yield: 9.76%.
NAV/unit: 27c (24% discount).
Gearing: 32%.
Interest cover ratio: 5.7x.

Cache Logistics Trust (95.5c):
Yield: 8.18%
NAV/unit: 88c (8.5% premium).
Gearing: 26.4%
Interest cover ratio: 9.5x.

Sabana REIT (94.5c):
Yield: 9.3%.
NAV/unit: 98c (3.6% discount).
Gearing: 24.9%
Interest cover ratio: 7.9x

For people who were lucky enough to invest in MIT during at its IPO at 93c per unit and are still holding on, they would be enjoying a distribution yield of 8.3% which is more attractive. What about investing in MIT now? The biggest attraction in investing in MIT now is probably its pedigree. Mapletree is, after all, an arm of Temasek Holdings. Ironclad? Probably.

What about Mapletree Logistics Trust (MLT) which has expanded through acquisitions? Back in July 2010, I mentioned that I was wary of this trust because of its high gearing of 43.6%. The management has since brought the gearing level down through equity fund raising. Its numbers are now somewhat stronger:

Mapletree Logistics Trust (90.5c):
Yield: 6.85%.
NAV/unit: 85c (6.5% premium).
Gearing: 39.4%.
Interest cover ratio: 6.7x

MLT's distribution yield is even lower compared to MIT's. Its gearing is also higher. MLT's occupancy rate is >98% and has less room to increase revenue by filling vacancies compared to MIT. If I have to choose between MLT and MIT, the latter has my vote.

See MIT presentation slides here.
See MLT presentation slides here.

8 comments:

Isaac said...

thanks for the analysis!

AK71 said...

Hi Isaac,

You are welcome. :)

Anonymous said...

Hi Ak,

What is interest cover ratio?

Thank you

Regards
Phyllis

AK71 said...

Hi Phyllis,

Simply put, it is ratio of net property income over interest expense. Higher the better. :)

Anonymous said...

Hi AK,

I believe MIT will benefit from rental reversion as well. At the moment, the bulk of its rental rates are trading below market averages and are due for renewal over the next 2 years. This will drive the rental income forward. We must compare MIT with A-REIT rather than with small cap REITs.

CIMB:

A comparison done by Colliers
International shows that current portfolio rents are 18-36% below current market rates.
Portfolio WALE is also short at 2.7 years (against the 5-year average for industrial
REITs) and more than half of its leases are due for renewal over FY11-12.


Cheers,
Nick

AK71 said...

Hi Nick,

Thanks for sharing. If things remain rosy as they are now, yes, rental reversions in the next 12 to 24 months should push income upwards for the REIT. We can only hope for the best.

As for comparing MIT with peers of similar size, that would involve other parameters. Based on my own motivation for investing in industrial properties S-REITs, I chose the parameters which are of greater importance to me in this blog post (although I did provide numbers of MLT as well to round things off).

My primary motivation currently is of course investing for passive income with an eye on the highest possible yields in the present time frame, believing that a bird in hand is worth two in the bushes. ;)

Coven said...

Hi AK

any further interest in MIT ? :)

AK71 said...

Hi Coven,

Nope. My plate is full. :)

However, if you have any insights, please feel free to share here. Insights are always appreciated.

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