Mapletree Industrial Trust – Data-driven Growth

September 2022

Excerpts from Maybank report

Mapletree Industrial Trust (SGX: ME8U)

  • Mapletree Industrial Trust (MINT)’s 1Q23 DPU rose c.4% YoY/flat QoQ, driven by rising US data centre contributions, now at c.51% of AUM.
  • The performance was in line with consensus and slightly above our estimates; we raise DPUs by 1-2% on stronger occupancies and rents, while our DDM-based TP stays at SGD3.00 (COE: 6.6%, LTG: 2.0%).
  • Growth headwinds from inflationary pressures and rising interest rates are partly offset by retained capital distributions, and a strong balance sheet.

Valuations are undemanding at c.5% yield, backed by improving fundamentals from better occupancies, recovering industrial rents, and higher DPU visibility from its rising data centre tenancies. BUY.

Better occupancies and reversions

Portfolio occupancy increased to 95.3% in 1Q23 (from 94.0% in 4Q22), with improvements across all property segments in Singapore (with occupancy rising from 94.4% to 96.0%) and the US (from 93.3% to 94.0%).

While gross rents in Singapore (at SGD2.13 psfpm) were flat QoQ and YoY (vs +3.9% YoY in 4Q22), rental reversion was better at +2.9% (vs +1.1% in 4Q22) from hitech (+2.0%), flatted factories (+2.2%), business park (+6.4%), as well as stack-up/ramp-up buildings (+0.8%), and set to strengthen into FY23.

Higher costs partly mitigated

MINT’s electricity hedges for its Singapore multi-tenanted properties had fallen off at end-May 2022, and management had earlier indicated that costs could rise by SGD10-12m for FY23E, or 2-3% of DPU.

We had pencilled in weaker NPI margins into the coming quarters on the back of the cost escalation, even as higher service charges (which were raised 10% for air-conditioning) at the business park and hi-tech buildings from Jul for all its ongoing leases could help mitigate the cost pressure.

Mapletree Industrial Trust DPU cushioned from rising rates

Gearing was stable at 38.4% and its balance sheet remains strong with 6.2x interest cover. Borrowing cost climbed to 2.5% in 1Q23 (from 2.4% in 4Q22) while fixed-rate debt rose to 72.3% (from 70.5%).

We expect higher base rates (of 100bps), with a 50bps increase in interest rates lowering DPUs by <1%. Cap rates for data centre assets remain tight, according to management, and as such we see low visibility on third-party acquisition opportunities in the near term.

Mapletree Industrial Trust share price chart
Mapletree Industrial Trust share price chart

You can find the full report here and the company website here

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