News Analysis: Mapletree Industrial Trust (“MINT”) : Broadening recovery not priced in

  • 3QFY22 DPU rise to a new record, a 6.4% increase y-o-y
  • Operational performance showing signs of a rebound; Singapore portfolio seeing upside in reversions supported by stable occupancies  
  • US datacentre portfolio valuations conservative vs market transaction levels – implying possible compression in P/NAV ratios from current 1.4x
  • BUY; TP S$3.35 maintained. 

(+) 3QFY22 remain on an uptrend as data-centre portfolio contribution kicks-in. 

  • Gross revenue and net property income (NPI) for Mapletree Industrial Trust (MINT) for 3QFY22 increased by c.31% and c.24% q-o-q respectively to S$162.4 and S$122.7m. The increase was from (i) recently completed acquisition of a portfolio of 29 data centres and (ii) 8011 Villa Park Drive Richmond, Virginia, (iii) lower rental reliefs disbursed to tenants in Singapore. 
  • This drove c.13% y-o-y rise in distributable income to S$91.9m with DPU rising by a lower 6.4% y-o-y to 3.49 Scts due to an expanded share base. 
  • On 9MFY22 basis, DPU came in at 10.31 scts, which is 75% of our full year forecasts.

(+) Steady financial metrics ; higher hedge ratios; DRP program reinstated 

  • Gearing remained stable at 39.9% (vs 39.6% as of Sept’21). 
  • 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 extended to 3.5 years (from 2.9 years from a quarter ago) with interest costs dipping slightly to 2.3% (vs 2.4% a quarter ago).
  • We notice that hedge ratios have increased to c.79.7% vs 57.7% a quarter ago which will likely shield the REIT from interest rate increases.
  • MINT have restarted its dividend reinvestment program (“DRP”) for this quarter where the REIT is able to build up capital incrementally to fund its development activities.  
Summary of results (S$’m)3QFY223QFY21%q-o-q2QFY22% y-o-y
Revenue162.4123.731.3%155.64.4%
NPI122.73598.924.1%120.32.0%
DI89.581.110.4%88.31.4%
DPU (Scts)3.493.286.4%3.470.6%
Aggregate leverage39.9%37.3%Higher39.6%Stable
Interest Coverage Ratio6.4x6.4xStable6.7xStable
Hedge ratio79.7%96.2%Lower57.7%Higher 

Our thoughts and recommendation
(-) Stable performance for Singapore portfolio; reversionary performance surprises on the upside. 

  • Operational performance for its Singapore portfolio showing bright spots with stable occupancy rates, retention rates while reversions in the quarter are generally stable/positive, initial signs of a bottoming out of the sector. 
  • While occupancy rates remained high at 93.6% (vs 93.7% a quarter ago), we note weakness in the Data Centres segment which was due to the accounting of its new US portfolio (93.9% vs 94.5% a quarter ago). Apart from this, we saw a general improvement in occupancies in the Business Parks  (83.0%, +.4ppt q-o-q), flatted factories (92%, flat q-o-q), stack-up buildings (+97.6%,+ 1.2ppt q-o-q), Hi-tech (98.6%, -0.1 ppt q-o-q). This is which a sign of further improvement in operational outlook for their portfolio of tenants.  
  • Rental reversions for renewals in Singapore surprised and were positive for most sub sectors, which we understand is due to businesses committing to spaces giving a firmer outlook. 
  • Looking ahead, we have forecasted reversions to remain flattish with a downside bias but may look to revise higher if actual performance remains robust. Our more cautious outlook is premised on the high supply outlook within Singapore putting pressure on the manager’s ability to raise rents. 

(+) US datacentres the key earnings driver; potential cap rate compression may drive upside to NAV. 

  • While occupancy rates for the US datacentre portfolio showed a headline dip from 93.6%, 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. 
  • With in-place cap rates at c.5.5% for MINT’s US datacentres, compared to transaction rates of between 4%-4.5%, we see scope for upward revaluation, bringing down the current 1.43x P/NAV. 

Implications to stock price. 
Opportunities for investors to pick up. With recent weakness in share price since the start of the year, MINT is current trading at FY23F yield of 5.5%, which is above its levels that it traded in the past 2-years. We see value at current levels. 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 datacentre focused properties. 

Catalyst: (i) upside to NAV from revaluations as its US datacentre portfolio cap rates of 5.5% is conservative compared to market transaction levels, (ii) potential acquisitions and (iii) stronger than anticipated results.