Mapletree Industrial Trust (SGX:ME8U) – A Data Centre REIT In The Making

I am bullish on data centres as I believe the data consumption can only go up in the future and more space is needed to house the servers.

Previously I covered 6 data centre REITs and most of them are based in the US. SGX Research identified 3 locally listed securities with exposure to data centres.

In Singapore, we have several Data Centre REITs listed on the SGX – besides Keppel DC REIT (SGX:AJBU) which is seen as a pure data centre play, Mapletree Industrial Trust (SGX:ME8U) and Wing Tai (SGX:W05) have part exposure to data centres.

Keppel DC REIT would be the primary choice but it is trading at the top range of its historical Price-to-Book (PB) range with a PB of 2.1. That’s higher than two standard deviations from the mean PB ratio. Hence, it is too pricey to invest in it at this point in time.

Wing Tai (SGX:W05) has about 3% of their assets in data centres and that’s insignificant to be considered a data centre play.

That leaves us with Mapletree Industrial Trust (SGX:ME8U) and it is a suitable data centre play with 31.6% of its assets in data centres.

Previously, the mandate for Mapletree Industrial was

Focused on industrial real estate assets in Singapore, excluding
properties primarily used for logistics purposes.

On 26 Sep 2017, Mapletree Industrial Trust expanded their mandate to include data centre investments:

The current mandate becomes (emphasis mine):

Focused on (i) industrial real estate assets in Singapore, excluding properties primarily used for logistics purposes and (ii) data centres worldwide beyond Singapore

Recently, Mapletree Industrial Trust made a sizeable acquisition of 13 data centres in the U.S. via a joint venture with Mapletree Investments. Keppel DC REIT on the other hand had 63.2% of the data centres in Singapore and zero exposure to the US.

I believe that Mapletree Industrial Trust would acquire more data centres in the future given that there’s where the growth is. This is a nascent data centre REIT and I won’t be surprised if they decided to change its name for better optics.

Before that, let’s see if the market recognises the data centre component in Mapletree Industrial Trust.

I see Mapletree Industrial Trust as 70% similar to Ascendas REIT (SGX:A17U) and 30% similar to Keppel DC REIT (SGX:AJBU). I reconstituted the price-to-book ratio and dividend yield of Mapletree Industrial Trust by using the figures from both Ascendas REIT and Keppel DC REIT.

	Ascendas REIT	Keppel DC REIT	70% Ascendas + 30% Keppel DC	Mapletree Industrial
Price/Book Ratio	1.5	2.1	1.7	1.7
Dividend Yield	4.9%	3.1%	4.4%	4.4%

The market is eerily accurate in pricing Mapletree Industrial Trust as the price-to-book ratio and dividend yield were similar to the reconstituted figures from 70% Ascendas + 30% Keppel DC. Hence, the market has already factored its exposure to data centres.

But the market has not factored in future acquisitions which could increase the weightage of data centres in its portfolio. So there could be some room to catch up in terms of valuation with Keppel DC REIT and the market would be adept to price that change accurately.

I have also plotted Mapletree Industrial Trust’s historical PB range and similar to Keppel DC REIT, it is trading above two standard deviations from the mean of 1.3.

To conclude, data centres have a bright future and most of them are listed in the US with the data centres located mainly in US too.

Keppel DC REIT and Mapletree Industrial Trust are both listed in Singapore with data centre exposures. The former is an obvious choice if you want to a pure data centre play or if you want data centres in Singapore.

But Mapletree Industrial is an up and coming data centre play with a change to its investment mandate. In fact, it has 30% of its assets in data centres. The market seems to like that and have factored in this exposure.

I expect Mapletree Industrial Trust to acquire more data centres and the weightage to data centers would therefore increase. This means that the valuation of Mapletree Industrial Trust should catch up with Keppel DC REIT and provide a decent capital gain for its unit holders.