I have written about my concerns on Singapore REITs and how Industrial REITs will be able to fare better in this COVID-19 crisis compared to retail/commercial ones. Readers interested in these articles may refer to them in the links below:
In today’s article, I wanted to share one industrial REIT that caught my eye and the reasons why!
Mapletree Industrial Trust has a diversified portfolio of real estates comprising of 87 industrial properties in Singapore and 17 data centres in the United States of America (through the joint ventures with Mapletree Investments Pte Ltd). The properties in Singapore include Hi-Tech Buildings, Flatted Factories, Business Park Buildings, Stack-up/Ramp-up Buildings and Light Industrial Buildings.
Mapletree Industrial Trust has 5 property segments namely – Hi-Tech Buildings (this consists of Data Centres), Business Park Buildings, Flatted Factories, Stack-up/Ramp-up Buildings and Light Industrial Buildings.
With a portfolio value of S$5.4 billion, Hi-Tech Buildings is the biggest contributor of 49.3% (of which 26.2% are Data Centres), followed by Flatted Factories of 29.5%, Business Park Buildings of 10.9%, Stack-up/Ramp-up Buildings of 8.8% and Light Industrial Buildings of 1.5%.
Increasing Exposure to Data Centres
Looking at Mapletree Industrial Trust’s Quarterly Results, one thing we noticed was the diversification away from the cyclical industrial property asset class and an increased exposure to data centre assets, which are riding on a global trend. Through a recent acquisition of an 80% interest in the Turnkey Portfolio and 10 powered shell data centres, this increased Mapletree Industrial Trust’s Hi-Tech Building contribution to AUM from 43.5% to 49.3%.
Going forward, there has been an increasing trend towards outsourcing of IT facilities and services, and adoption of cloud services leading to the growth and development of hyper-scale data centres. Such hyper-scale data centres have become a critical infrastructure for the world’s largest cloud services and technology companies, as well as corporates that are increasingly adopting cloud-based applications. Furthermore, with the recent COVID-19 crisis, I am of a view that it would be accelerating the shift towards BigTech, which I discussed in an earlier article on my blog here – In A Post-Covid World: Accelerating BigTech Companies. Hence, this would further accelerate the shift for the demand of such data centres.
Furthermore, there additional signs that Mapletree Industrial Trust is shifting away from the flatted factories and light industrial buildings, which command lower rental rates compared to hi-tech buildings and business park buildings that are more customised for technology-based and R&D business activities.
The Company recently announced a redevelopment project on 10 July 2019 here, whereby they will be redeveloping their 506,720 sqft Kolam Ayer 2 Flatted Factory Cluster into a new hi-tech building with a GFA of 865,600 sqft, due to an increase in plot ratio from 1.5 to 2.5. Approximately 24.4% of the new hi-tech building GFA or 211,000 sqft has already been pre-committed to an anchor tenant who is a global medical device company headquartered in Germany. The anchor tenant will sign an initial 15-year lease for the build-to-suit facility with options for subsequent five-year renewals and annual rental escalations built into the lease.
With this redevelopment, it not only increases the GFA that Mapletree Industrial Trust is able to rent out but an increase in rental rates as well due to the hi-tech nature of the building. This further shows their commitment in moving away from the lower quality industrial buildings to higher quality industrial buildings.
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The information provided by InvestingNook serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.