Mapletree Industrial Trust (SGX: ME8U) is one of the biggest industrial real estate investment trusts (REITs) listed in Singapore. It has 87 industrial properties and 14 data centres in the US (through its 40% joint venture).
Over the last five years, MIT’s investors have enjoyed a great ride with the REIT as its share price grew by about 74%. This has yet to include dividends payments over that period.
But after such strong returns, is MIT still a great buy today? For me, the answer is yes, but also no. Let’s explore further.
It’s probably still a good buy, even now
One of the main reasons MIT might still be a good buy, despite its strong returns, is the REIT’s strong execution track record.
For those unaware, MIT has delivered solid performances ever since its IPO in late 2010. During this period, it grew its gross revenue from S$246.4 million in FY11/12 to S$376.1 million in FY18/19. Similarly, its distributable income improved from S$131.7 million to S$231.8 million during the period. Consequently, distribution per unit (DPU) was up from 8.41 Singapore cents to 12.16 Singapore cents during that period.
Such track record is enviable — more so when we consider the fact that MIT invests mainly in industrial assets (one of the worst-performing asset classes over the last few years). As such, we might want to give the REIT’s management the benefit of the doubt when it comes to executing in the foreseeable future.
One of the major downsides for investors buying MIT today is its unattractive valuation.
One way to gauge MIT’s valuation (overvalued, fair, or undervalued) is to compare its price-to-book ratio (P/B) and distribution yield (DY) to the market average. Here, I will be using the average P/B ratio and DY for the 42 REITs that are listed in Singapore’s stock market.
MIT is trading at a P/B of 1.6 and a DY of 5.0%. Comparatively, the average P/B and DY are 1.1 and 6.1%, respectively. So, it looks like MIT is trading at a reasonable premium over the market average.
As investors, we always try to buy something for less than its value. This philosophy applies not only to value stocks, but also income stocks like MIT. In simple terms, that means paying less than S$1 for each dollar of asset. MIT is definitely not trading at such a valuation, especially given its strong share price performance over the last five years.
MIT is a good investment worthy of investors’ consideration. Yet, its high valuation means investors are not getting a lot of bargain at the shares’ current price.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool Singapore recommends Mapletree Industrial Trust.