Mapletree Industrial Trust – Steady Execution

Excerpts from UOBKayHian report

Mapletree Industrial Trust (SGX: ME8U)

• Mapletree Industrial Trust (MINT) achieved broad-based positive rental revision of 9.2% in 1QFY25 for renewed leases across all property segments in Singapore.
• It has secured an established healthcare operator as a replacement tenant for data centre at Brentwood, Tennessee. It plans to recycle its assets and diversify into established data centre markets in Asia Pacific and Europe.
• Mapletree Indusrial Trust provides FY25 distribution yield of 5.9% (DCREIT: 6.3% and KDCREIT: 4.9%).

Maintain BUY. Target price: S$2.78.

Expanded into Japan’s data centre market

Gross revenue and NPI grew 2.7% and 1.3% yoy respectively due to the acquisition of a data centre in Osaka, Japan completed on 28 Sep 23. Distribution declared by its second data centre JV, Mapletree Rosewood Data Centre Trust (MRODCT), rose 46% yoy to S$7.4m as distribution was withheld last year due to Cyxtera filing for chapter 11 bankruptcy. Cyxtera was subsequently acquired by Brookfield, merged with Evoque and rebranded as Centersquare.

Broad-based positive reversion from all property segments in Singapore

Mapletree Industrial Trust achieved weighted average rental revision rate of 9.2% for its Singapore portfolio in 1QFY25 (flatted factories: 12.3%, business parks: 11.5% and stack-up/ramp-up buildings: 7.9%). The average rental rate of the Singapore portfolio increased 1.8% qoq to S$2.26psf per month in 1QFY25.

Singapore portfolio occupancy stable at 93.6%

Occupancy for hi-tech buildings improved 0.7ppt qoq to 89.3%. Occupancy at Mapletree Hi-Tech Park further improved 2.2ppt qoq to 53.5% in 1QFY25. Management continues to source for potential tenants in the advanced manufacturing, information & communication and automation & robotics industries, especially those requiring large and contiguous floor plates.

Backfilled vacancy at Brentwood, Tennessee

MINT has successfully secured a replacement tenant to fully lease 402 Franklin Road at Brentwood, Tennessee. Occupancy for its data centre portfolio improved 1.5ppt qoq to 89.2%. Portfolio WALE increased from 4.4 to 4.6 years due to the long lease commitment of 30 years from the new tenant, who is an established healthcare operator. The average rental rate of the North America portfolio was stable at US$2.49psf/month.

Conservative capital management

Aggregate leverage edged higher 0.4ppt qoq to 39.1% as of Jun 24. Interest coverage ratio was healthy at 4.3x. The average tenor of debt was 3.6 years.

Moderate increase in cost of debt

Average cost of debt was stable at 3.2% in 1QFY25. About 82% of borrowings are hedged through interest rate swaps and fixed rate borrowings as of Jun 24. MINT has interest rate swaps of S$300m-400m expiring in FY25, which have to be replaced by interest rate swaps at higher interest rates. Cost of debt is expected to increase slightly to 3.3-3.4% in FY25.

Gradually deleveraging through DRP

MINT will be resuming its distribution reinvestment plan (DRP) for the 1QFY25 distribution.

Valuation/Recommendation

Maintain BUY. Our target price of S$2.78 is based on DDM (cost of equity: 7.0%, terminal growth: 2.2%). Mapletree Industrial Trust share price chart You can find the full report here and the company website here.