Mapletree Industrial Trust (MIT) is a REIT listed on the SGX with a portfolio of 115 industrial and data center properties located in North America and Singapore. MIT has assets of S$6.8 billion as of March 31st, 2021.
Singapore’s REITs were impacted exponentially by the COVID-19 pandemic, with the industrial REITs being spared and thriving during the pandemic. Maple Industrial trust has consistently grown in distributable income and revenue over the past five years.
MIT has centered its growth towards growing its data center segment which looks to be a strong growth driver for the REIT over the coming years, and our lives become more digitized over time.
It is important to note that the earnings per share of MIT have gone down 14% per year despite its strong share price performance over the five years. Therefore, the market is not judging MIT based on its earnings growth but rather on other metrics.
What are REITs?
REIT stands for Real Estate Investment Trust, a company that operates, owns, finances income-generating real estate. REITs are typically modeled after mutual funds with a pool of capital investors. This makes it possible for individual investors to earn dividends from their real estate investments without managing, buying, or financing any property by themselves. Click here to find out more on the best reits in Singapore
How REITs Work
REITs have a straightforward business model. Real estate companies lease and collect rent on their property, which is paid out to shareholders in the form of dividends.
REITs are obligated to pay out 90% of their income to shareholders, whereas most payout 100% of their incomes. The shareholders, in turn, pay income taxes on the dividends received.
There are different types of REITs. They include:
1. mREITs
These are mortgage REITs that provide financing for income-producing real-estate by buying or originating mortgages or mortgage-backed securities and earn an income from the interest of these investments.
2. Equity REITs
Most of the REITs are traded as equity REITs. Equity REITs either operate or own income-producing real estate. Equity REITs are referred to as REITs in the market.
3. Private REITs
Private REITs are exempted from SEC registration, and their shares do not trade on the national stock exchanges
4. Public Non-listed REITs
PNLRs are registered with the SEC but not traded on the national stock exchanges.
Pros and Cons of Investing in REITs
The Pros
- Great liquidity
- Transparency
- They are diversified
- Have a stable cash flow through the dividends
- They offer a risk-adjusted return
The Cons
- They have low growth
- Their dividends are taxed as regular income
- They are subject to market volatility
- Very high management fees and transaction fees
Things to Consider When Investing in REITs
Here are some of the most important factors to consider before investing in REITs:
The Type of Industry
Keep in mind that not all REITs in Singapore are the same. There are six broad categories: residential, retail, healthcare, industrial, and hospitality. Every sector has its characteristics that will affect the growth rate, performance, and risk profile.
The Dividend Yield
This is the first thing every investor looks at. While looking at the REIT with the highest dividend yield, it is essential to examine its track records.
Ask questions such as Does the REIT pays a stable or rising dividend per share year after year? Or does it fluctuate ever so often?
Go for REITs that have a steady growth on the income and dividend per share year after year. This is a better investment than REITs, whose dividend payouts keep fluctuating all the time.
The Property Yield
The property yield is the amount of income a REIT generates from a property. For example, if a property is worth 10 million and earns a $400k rent in a year, its property yield is 4%. The higher the yield, the better.
However, it is more important to examine if the REIT property yield grows over the years. You will notice that a well-managed REIT will always look for ways to improve its property yield. One of the most common ways REITs improve their property yield is by acquiring yield-accretive properties.
The Gearing Ratio
The gearing ratio represents the REITs amount of debt over its total assets. The higher the percentage, the more debt the REIT has.
REITs are regulated very closely and can only borrow up to 45% of their total assets. For example, if a REIT owns billion-dollar assets, it can only borrow up to $450 million in loans. A REIT can borrow money to fund new growth projects or upgrade its buildings.
The P/B Ratio
The P/B ratio measures the REIT’s share price against the net asset value per share. A P/B ratio of 1 indicates a fair valuation, and more than one valuation is overvalued. A ratio below 1 means that the REIT has been undervalued.
What are the Benefits of Investing in REITs?
Here are essential REIT benefits for unitholders:
No Corporate Tax
It is important to note that it does not pay any corporate tax, no matter how profitable a REIT is.
High Dividend Yields
REITs are required by law to pay at least 90% of their taxable income to their shareholders, and they all tend to be above average dividend yields.
REITs are an excellent option for investors who need income and want to reinvest their dividends and let them compound over time.
REIT Has a Total Return Potential
Unlike other assets, REITs have a high potential for capital appreciation. Real estate tends to increase in value overtimes, and this ensures that investors’ capital is always safe.
Combined with the high dividend yields, REITs have a great return on investment.
What is Mapletree Industrial Trust?
MIT is a REIT listed on the main board of the Singapore Exchanges. Its primary investment strategy is to invest in a diversified portfolio of income-producing real estate mainly used for industrial purposes in Singapore.
The REIT also invests in income-generating real estate produced primarily for data centers worldwide, even beyond Singapore. MIT was first listed on October 21st, 2010, and its total assets under management have grown from S$2.1 billion to S$6.8 as of March 31st, 2021.
MIT’s property portfolio has over 86 properties with 28 properties in North America, including 13 data centers held through a joint venture with Mapletree Investments Pte Ltd.
Its property portfolio includes Hi-Tech buildings, Data Centers, Flatted Factories, Business Park Buildings, Light Industrial Buildings, and Stack-up/Ramp-up buildings. Mapletree Industrial Trust strives to deliver growing and sustainable returns to its unitholders by providing quality real estate solutions for its clients.
Mapletree Industrial Trust is managed by Mapletree Industrial Trust Management Ltd and is a wholly-owned subsidiary of Mapletree.
Should You Invest in Mapletree Industrial Trust?
Yes.
Here are some of the reasons you should consider investing in the MIT REIT:
1. Its gross revenue increased 0.2% year-on-year to S$447.2 million in FY20/21, from S$405.9 million in FY19/20
Its net property income (NPI) also increased by 10.4% year on year to S$351.0 million in FY20/21 from S$318.1 million in FY19/20.
This growth can be attributed to consolidating 14 data centers in the U.S. that Mapletree Redwood Data Center Trust previously owned.
2. MIT’s distribution per unit (DPU) increased 2.5% year-on-year to 12.55 cents in FY20/21, from 12.24 cents in FY19/20
The REITs distributable incomes of S$295.3 million increased by 11.3% from S$265.3 million in the FY19/20. This was attributed to a higher NPI and cash distribution by joint ventures.
3. MIT’s aggregate leverage ratio increased to 40.3%, from 37.6% the previous year
MIT’s ratio has steadily increased since 2017. The current aggregate average ratio is well below the regulatory limit of 50%; this makes it a viable investment if you are looking for a REIT.
4. Acquisition of the U.S. data centers increased the share of data centers on MIT’s portfolio to 41.2% as of March 31st, 2021, from 31.6% the year before
Tech is a great industry to invest in, even with its high market volatility since we are moving to an almost fully digitized world.
Closing
Mapletree Investment Trust is listed on the mainboard of the SGX. It has seen steady growth since it was listed on the exchange market. MIT invests in different industries to keep a diversified portfolio for its investors.
Key Takeaways
- REITs are real estate investment trusts that unitholders earn dividends from.
- Mapletree Industrial Investment is a subsidiary of Mapletree Investment Pte Ltd.
- MIT has seen steady growth in revenue and profit over the years.
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