Mapletree Industrial Trust – Data-driven Growth

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.

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