Mapletree Industrial Trust (“MINT”) : Near term bottom is found.

<Alert!>: Mapletree Industrial Trust (“MINT”) : Near term bottom is found. 

  • Robust c.12%  y-o-y rise in DPU in 2QFY22 a positive catalyst for the stock 
  • Operational results remain stable; Singapore portfolio continues to hold the fort 
  • Projected 7.0% CAGR in DPUs over FY22-23F driven by recent acquisitions in data center space; will bring yields towards 5.2%-5.3%
  • US datacenter portfolio valuations conservative vs market transaction levels – implying possible compression in P/NAV ratios
  • BUY; TP S$3.35 maintained. 

(+) 2QFY22 results robust as data-centre portfolio contribution kicks-in. 

  • Gross revenue and net property income (NPI) for Mapletree Industrial Trust (MINT) for 2QFY22 increased by c.21.5% and c.14.9% y-o-y respectively to S$155.6m and S$120.3m. The increase was from (i) consolidation of 14 data centers in the USA (previously accounted as associates), (ii) recently completed acquisition of a portfolio of 29 data centres and (iii) 8011 Villa Park Drive Richmond, Virginia. 
  • This drove c.21.3% y-o-y rise in distributable income to S$88.4m, and DPU rose by a lower 11.9% y-o-y to 3.47 Scts due to an expanded share base. We note that 0.07 Scts (or 2.0% of this quarter DPU) came from the distribution of gains made from the sale of 26A Ayer Rajah Crescent. 
  • On 1H21 basis, DPU came in at 6.82 scts, which is 50% of our full year forecasts.

(+) Optimal gearing level as MINT gears up to acquire 

  • Gearing increased to c.39.6% from 31.0% in Jun’21 and should remain stable at current levels. 
  • Even with the higher gearing, we remain comfortable that MINT’s balance sheet remains well capitalised, with diversified funding sources and no concentration in refinancing. 
  • The weighted average debt expiry (“WADE”) is 2.9 years with a slight dip in interest cost to 2.4% (vs 2.7% a quarter ago) mainly due to a lower hedge ratio of 57.7% (vs 95.8% a quarter ago). 
Summary of results (S$’m)2QFY221QFY22%q-o-q2QFY21% y-o-y
Revenue155.6128.121.5%103.3550.6%
NPI120.3104.714.9%81.6047.4%
DI88.382.76.8%72.8821.2%
DPU (Scts)3.473.353.6%3.1011.9%
Aggregate leverage39.6%31.0%Higher  
Interest Coverage Ratio6.7x6.8xStable  
Hedge ratio57.70%95.80%Lower  

Our thoughts and recommendation
(-) Stable performance for Singapore portfolio; but supply may result in softer reversionary prospects in 2HFY22. 

  • Operational performance for its Singapore portfolio remain stable. While occupancy rates inched higher to 93.6% (vs 94.4%) a quarter ago , we note weakness in the Business Parks segment (c. 82.6%, down 1.0 ppt q-o-q) due to return of space from a tenant undergoing space rationalisation from adoption of flexible work arrangements, but this was offset by higher occupancy rates in the flatted factories (92%, +1 ppt q-o-q) and light industrial properties (83.1%, +4.4 ppt q-o-q). 
  • We note the absence of rental rebates in 2QFY22, similar to that in 1QFY22, a sign of further improvement in operational outlook for their portfolio of tenants. 
  • Rental reversions for renewals in Singapore remain broadly negative at c.-0.6% and we note that its Business Parks (-5.8%) and flatted factories (-1.6%) saw negative reversions but Hi-Tech space is up by 4.1% . 
  • Looking ahead, we expect reversions to remain soft in the interim and expect to see some volatility in occupancy rates given the high supply outlook within Singapore putting pressure on the manager’s ability to raise rents, with the strategy still preferring to focus on maintaining occupancy rates. 

(+) US datacentres the key earnings driver; driving DPU by 7.0% CAGR over FY21-23F

  • While occupancy rates for the US datacentre portfolio showed a headline dip from 97.8% to 93.9%, this was due to the combined effect from the recently acquired portfolio of 29 datacentres (c.89% occupancy rates). 
  • With no leases up for renewal yet, returns have been fairly stable. 
  • Looking ahead, we project MINT to deliver a c.7% CAGR in DPUs over FY21-23F driven mainly from the contribution from its US datacentre portfolio .

Implications to stock price. 
With recent weakness in share price, we see value emerging for MINT at 1.5x P/NAV, and forward yields of c.5.2% are attractive. On the back of robust results and yields approaching 1-year high, we believe that investors should revisit MINT at current levels as the manager seeks to continuously pivot the portfolio towards more data center focused properties, which now contribute c.52% of its AUM. 

Catalyst: (i) upside to NAV from revaluations as its US datacenter portfolio cap rates of 5.5% is conservative compared to market transaction levels and (ii) potential acquisitions.