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Can Mapletree Industrial Trust Keep Going After A Strong First Quarter?

mapletree industrial trust

Mapletree Industrial Trust (SGX: ME8U), one of the largest industrial property owners in Singapore, announced its first quarter results yesterday. The REIT currently owns 85 properties island-wide that are collectively valued at more than S$3.2 billion.

Financial highlights

The trust was able to grow its revenue for the first quarter by 4.4% year-on-year to S$78.4 million. This happened because the REIT had been able to demand higher rents from all its property segments except for Business Park Buildings; its average passing rent had improved from S$1.75 per square foot per month (psf/mth) in the preceding quarter to $1.77 psf/mth. Together with reduced borrowing costs this quarter, the trust managed to obtain a net profit of S$43.1 million, which is 8.4% higher compared to a year ago.

Mapletree Industrial Trust’s distribution income had also improved by 6.3% year-on-year to S$42.8 million. However, due to a slight increase in the number of units outstanding, the REIT was only able to grow its distribution per unit by 3.3% to 2.51 Singapore cents. Given its current price of S$1.45 per unit, that translates to an annualized yield of 6.9%.

The REIT’s balance sheet also improved in the quarter. For instance, its aggregate leverage had decreased from 34.4% three months ago to 33.6% while its interest coverage ratio had strengthened from 8.1 to 8.5.

Track record and new plans

Since 2010, Mapletree Industrial Trust has been building a strong track record in terms of being able to improve its gross rental rates; that in turn has helped improve its distribution per unit as well.

Going forward, the trust is developing a new 7-storey data centre for Equinix in Ayer Rajah Crescent. It is also redeveloping an industrial project for Hewlett-Packard which is valued at S$250 million. All these plans will help the trust to continue to grow its distribution for its unit holders in the future.

Foolish Summary

Although the future seems bright for the trust, investors would still have to take note of the general risks that comes with investing into REITs. Most REITs are financed using short term loans (borrowings that have to be repaid within five years) but have long term assets (properties). Therefore, in the event of a liquidity crisis, REITs might be greatly affected due to a mismatch between the maturity of their assets and their liabilities.

With the possibility of interest rates edging higher in the next few years, these REITs might see increased borrowing costs. That’s certainly something to think about for investors interested in REITs, Mapletree Industrial Trust included.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn't own shares in any company mentioned.