back, Mapletree Industrial Trust released their quarterly earnings and at the
same time, announced a joint venture with Mapletree Investments to acquire 14
data centres. This shouldn’t come as a surprise, as they have made known their
investment strategy on 26th Sept 2016 to explore established data centre
funded via bank borrowing and private placement of 68million shares to
institutions and other investors at the issue price range of $1.83 to $1.90. It
was 3.3x oversubscribed and price at the top range at $1.90, suggesting strong
the first share I have ever own and bought it during it’s IPO. Back then I was
in my final months of NS and I went to subscribe 3,000 shares at the ATM
machine using all my savings. I was lucky that to be alloted 1,000 shares because I
was told that a good IPO with Temasek backing is hard to get. It opened at $1.00 and I thought I was
even luckier by selling it at $1.20 months later after collecting more than 2
rounds of dividends. I thought of buying back when it dips below it but it had
gone upwards since then. However, I added 2000 shares at $1.84 in August after
having some spare cash for that month and they announced the acquisiton after. Here are some of the reasons why I find the acquisition makes sense.
the concerns I had all the while was its short leasehold. As of March 2017, the weighed
average unexpired lease term is about 39.3 (38.8 as of Oct 17) years.
It’s calculated based on land area. However, that’s also the reason that it’s
able to obtain a higher yield compared to other Reits as leasehold properties
require lesser capital to purchase, and tenants are not affected by the
leasehold years. The downside is having to constantly acquire properties to
improve the average lease term.
were to calculate based on Gross Revenue, for FY16/17, total revenue collected
for leasehold properties less than 21 years would be $41,699,000 of total
revenue of 161mil, which is about 25%.
lengthening the land lease as it now forms 24.4% of its total portfolio by
venture is also said to be yield accretive, as the acquistion of the data
centres increases the distribution per unit (DPU) despite the dilution effect.
more distributable income to shareholders without the need to fork out
additional cash. Although the loans would increase net debt to 34.7%, it is still
averagely lower compared to other industrial reits.
have been monitoring First Reit and Parkway Reit in Singapore, you will realize
that their DPU increases every quarter (when compared Year on Year).
how the rent review mechanism is calculated, which explains why PLife Reit
managed to grow their DPU every year, consistently.
reason is because of the build in mechanism for rental escalations. In the case
of the data centre, it’s an annual rental escalation of at least 2%.
I read a Business Times article about the way Reits compute rental reversions.
There is no uniform way of calculating rental reversions and it’s not mandatory
to disclose it.
instance, Keppel Reit’s rent reversion only applies to new, renewal and foward
renewal leases. Review leases, which refers to long leases, are not included.
This was mentioned in the regulatory filing earlier this year. However
in Q3 reporting, it was mentioned that rent reversion were positive at 3% for
the first nine months.
Mapletree Industrial Trust, they didnt specifiy any rental reversion policy. Basically
they just disclose the gross revenue and net property income in every financial
period. As to whether they have any reversion for review lease or just renewal
lease, your guess is as good as mine. I will write to Investor Relations team (suggested by Kyith from Investment Moats) and update you if they reply.
plan (discontinued) which allows shareholder to automatically reinvest dividends and capital
gains distributions. Investors who chose to take cash instead would see their
shareholdings diluted by the new issued shares. Some reits reported higher distributable income after rights or drip, but dpu drops because of the
dilutive effect. As for MIT, despite share dilution, its dpu has been always
higher than the previous year’s quarter since it’s listing. The industrial REIT
that sees dividend growing every quarter when compared year on year is
Ascendast REIT. (with an exception in Yr 2013). Thats also the reason that it’s
trading at a premium to NAV of 1.4X.
who has been very prudent in their investments to enhancing shareholder’s
success is determined by our efforts today. Like what Warren Buffett had said, someone is sitting in
the shade today because someone planted a tree a long time ago.
dividend partly due to AEI through funds from Dividend Reinvestment Plan
(DRIP) and alwyas having visible pipeline of projects coming up. The coming ones will be 30A Kallang Place and
Kallang Basin 4 Cluster (AEI) and a new data centre for HP. The management are
able to ensure that new projects are able to contribute to the distributable
income to offset any loss of dividends from lower occupancy or drop in rental
eat it. If Mapletree Industrial Trust has good management, growing dpu, low
gearing, what’s the catch?
quite above book value, 1.4X, and since it’s listing it has never traded at a
discount to book value. I guess that’s the premium for good management and
a reputable sponsor. You got to give it to them for growing the dpu in
challenging times and enhancing shareholder value. I am often more inclined to buy Reits managed by a reputable Reit Manager. My favourites are: Parkway, Capitaland, Fraser and Mapletree.
peers. At $1.97, MIT is trading at a premium to book value, hence it’s yield is
too as MIT managed to grow it’s dividend at a rate of 6.87%
For a company with reputable sponsor, I thought the valuation is likely to be the Archilles’ heel analyzing it’s value. Though
great companies are likely to be cheap especially in the bull market, we have
to calculate and ensure we aren’t overpaying or else we are unlikely to receive
a decent return on investment.
As the purpose of buying Reits is for stable dividends, we would use dividend discount model.
To find growth rate which market is current valuing, we can do up a value per share as a function of expected growth rate graph. In this case, the implied growth rate would be about -1.32% to justify the share price of $1.980. So market is pricing MIT at -1.32% drop in yearly dividends if all my assumptions hold.
Two stage dividend discount model
adding all up:
Price= 0.1243/(1+0.0213+0.0539β)¹ + 0.1328/(1+0.0213+0.0539β)² + 0.1420/(1+0.0213+0.0539β)³+0.146212/(0.0539β-0.0087)/(1+0.0213+0.0539β)⁴
|Implied beta at $1.98 is about 1.32