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Better Investment: Ascendas REIT vs. Mapletree Industrial Trust

Chong Ser Jing

Ascendas REIT (SGX: A17U) and Mapletree Industrial Trust (SGX: N2IU) are two of the largest real estate investment trusts (REITs) in Singapore’s stock market that focus on Singapore-based industrial properties.

Over the last five years, data from S&P Global Market Intelligence show that Ascendas REIT’s units have delivered a dividend-adjusted return of 76%, while Mapletree Industrial Trust’s units have produced an even stronger dividend-adjusted return of 120%.

It’s clear that both REITs have given their long-term investors plenty to smile about. That’s especially so when we consider that Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), has climbed by just 13% in the same period, even after including gains from dividends.

But which of the two industrial REITs would likely be the better investment for the next five years? Let’s take a look.

Business basics

On the surface, Ascendas REIT and Mapletree Industrial Trust are similar, since both are large REITs that are heavily exposed to Singapore’s industrial property market. But there are important differences to appreciate.

At the end of June 2019, 79% of Ascendas REIT’s total property portfolio value of S$11.11 billion came from its Singapore properties. Real estate assets in Australia and the UK made up the rest at 14% and 7%, respectively. In terms of property categories, the important ones are Business & Science Parks (at 33% of the overall portfolio value of S$11.11 billion), Logistics & Distribution Centres (29%), and High-Specification Industrial & Data Centres (20%). The REIT has 171 properties in total.

For Mapletree Industrial Trust, the REIT’s Singapore properties accounted for 91% of its total portfolio value of S$4.8 billion as of 30 June 2019; the remaining 9% came from the REIT’s ownership of a 40% stake in a collection of 14 data centres in the US. The two critical property-categories in Mapletree Industrial Trust’s portfolio are Hi-Tech Buildings (44% of the REIT’s total portfolio value) and Flatted Factories (33%). There are 101 properties in Mapletree Industrial Trust’s portfolio.

Historical growth and current financial strength

The two most important gauges of the underlying economic value of REITs are the NAV (net asset value) per unit and DPU (distribution per unit). On both fronts, Mapletree Industrial Trust comes out ahead.

Over the past five years, Mapletree Industrial Trust’s NAV per unit grew by 4.8% per year from S$1.20 to S$1.52, according to S&P Global Market Intelligence, while its DPU increased at an annual rate of 4.2% from S$0.10 to S$0.1226. For Ascendas REIT, the annual growth rate for its NAV per unit was just 1.7% from S$2.02 to S$2.19 over the same period. DPU growth for Ascendas REIT was also relatively anaemic at 2.3% (up from S$0.1433 to S$0.1604).

Coming to financial strength, the gearing ratio (ratio of debt to assets) is a useful metric. It’s worth noting that REITs in Singapore are required by the Monetary Authority of Singapore to keep their gearing ratio below 45%. As of 30 June 2019, Mapletree Industrial Trust’s gearing ratio of 33.4% is lower than Ascendas REIT’s 37.2%.

Winner: Mapletree Industrial Trust

Future growth opportunities

Both Ascendas REIT and Mapletree Industrial Trust have well-diversified property portfolios, well-staggered lease expiry profiles, and well-distributed debt maturity profiles. These traits suggest that both REITs have strong foundations for growth.

29.4% of Ascendas REIT’s portfolio as of 31 March 2019 comprises long-term leases in single-tenant properties. These leases feature rental escalation terms, which provide a source of organic revenue growth. The escalation terms have three main categories: Escalation that is pegged to inflation; fixed rate adjustments; and varying quanta of periodic step ups.

But I think Mapletree Industrial Trust still comes out ahead in terms of growth opportunities. The REIT has a 40%-owned portfolio of 14 data centres in the US, as mentioned earlier, and the portfolio has some attractive characteristics: The land in the portfolio is freehold; all the data centres are on triple net lease structures whereby all property-related costs are borne by the tenants; demand for data centre space worldwide is projected to grow by 5.2% per year from 2017 to 2022; and Mapletree Investments has granted the right of first refusal on its 60% stake in the 14 data centres to the REIT (Mapletree Investments is the sponsor and Manager of Mapletree Industrial Trust, and it is a real estate company controlled by Temasek Holdings, one of the Singapore government’s investment arms).

Moreover, Mapletree Industrial Trust has a proven track record in growing the rental rates of its Singapore portfolio steadily over time, from S$1.45 per square feet per month (psf/mth) in the quarter ended 31 December 2010 to S$2.10 psf/mth in the second quarter of 2019.

Winner: Mapletree Industrial Trust

Valuation

Given the importance of the NAV per unit and DPU in gauging the underlying economic values of Ascendas REIT and Mapletree Industrial Trust, two useful valuation metrics for the pair are the price-to-book (P/B) ratio and the distribution yield.

At the time of writing, Ascendas REIT’s share price of S$3.07 gives it a P/B ratio of 1.4, and a distribution yield of 5.2%. Mapletree Industrial Trust’s share price of S$2.24 confers a modestly higher P/B ratio of 1.5 but a slightly more attractive distribution yield of 5.5%.

Winner: It’s a tie

Final call

Both Ascendas REIT and Mapletree Industrial Trust have solid foundations for growth and traits which suggest room for more growth ahead. And from a valuation standpoint, both REITs aren’t far from each other. But Mapletree Industrial Trust has the relatively more attractive growth-profile, historical track record, and financial strength. So although I think it’s likely that both REITs will comfortably beat the overall Singapore stock market in the next five years, Mapletree Industrial Trust seems the better choice of the two for now. 

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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 units of Ascendas REIT and Mapletree Industrial Trust. The Motley Fool Singapore writer Chong Ser Jing owns shares in Mapletree Industrial Trust.

Motley Fool Singapore 2019