The industrial real estate landscape in Singapore has gone through a tough period, with over-supply causing rental rates to plunge and vacancies to soar. It also did not help that lease tenures for industrial properties were either 30 years or 60 years. This short lease period meant there would be higher depreciation charges on the property, and it has to be returned sooner to the government compared to properties with longer leases.
Industrial REITs in Singapore have also been hit in the last few years. Cache Logistics Trust, which invests in a portfolio of logistics properties in Singapore, has seen its share price tumble from a high of S$1.17 five years ago to S$0.74. Sabana Shariah REIT, a REIT that owns 18 industrial properties in Singapore, also reported challenging conditions and has seen its share price plunge from S$0.91 in June 2014 to S$0.44.
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However, one industrial REIT stands out for being a great performer: Mapletree Industrial Trust (SGX: ME8U), or MIT. MIT’s portfolio consists of 87 industrial properties in Singapore and 14 data centres in the US. Its shares have done very well over the last five years, rising from S$1.45 to S$2.08.
Here are three reasons I believe MIT makes a great investment.
1. Acquisition of 18 Tai Seng Street
MIT had, in December 2018, announced the acquisition of 18 Tai Seng Street, which is a nine-storey mixed-use industrial development with industrial, office, and retail spaces. The acquisition was completed in February 2019 with a purchase consideration of S$268.3 million. The building is located in Paya Lebar iPark and is linked to Tai Seng MRT station; it’s leased to 44 tenants and has annual rental escalations built into 95.7% of the leases.
This acquisition is expected to be both distribution per unit (DPU) and NAV accretive to unit holders, and the effects will come through in fiscal year 2020 (beginning 1 April 2019).
2. Increase in weighted average debt tenor
MIT proactively manages its debt, and in fiscal year 2019 (FY 2019), it had announced that the weighted average tenor for its borrowings had increased from 3.1 years to 4.4 years. This was due to the issuance of longer-tenor S$125 million 10-year notes. The aggregate leverage ratio stood at 33.8%, providing the REIT with ample headroom for further borrowings in order to acquire more properties if need be.
The increase in the weighted average debt tenor reduces the risk for unit holders as the REIT will need to refinance its debt at a much later stage. In a rising interest rate environment, this reduces costs for the REIT as it is able to lock in a lower cost of financing for its borrowings.
3. Consistent and sustained increase in DPU
Finally, the REIT has a long track record of consistently growing its DPU, as evidenced by the graph below.
Source: Mapletree Industrial Trust FY 2019 Presentation Slides
MIT started off in 4Q FY 2010/2011 with a quarterly DPU of 1.93 Singapore cents, and over the following eight years, it grew this by 37% to 3.08 Singapore cents. This represents a compound annual growth rate of 6% and is a testament to management optimising the REIT’s portfolio and extracting good value for investors.
Confidence for the future
With such a great track record of growing DPU, and with good catalysts for growth on the horizon, investors should seriously consider adding MIT to their portfolio of REITs.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended the shares of Mapletree Industrial Trust. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.