Strong 4Q22, lowering DPUs
MINT delivered a strong 4Q22, as DPU rose c.6% YoY, driven by rising US
data centre contributions, now at c.51% of AUM. FY22 DPU of 13.80cts, at
+10% YoY, was ahead of consensus and our estimates. Recovering industrial
rents and improving DPU visibility from higher data centre tenancies
suggest sound fundamentals. Growth headwinds from inflationary
pressures and rising interest rates are partly offset by retained capital
distributions, and a strong balance sheet. With costs rising sharply, we
pare back our margin assumptions, lowering DPUs by 4-5%, and trimming
our DDM-based TP by 7% to SGD3.10 (COE: 6.0%, LTG: 2.0%). Stay at BUY.
Singapore recovery in sight, with costs rising
Portfolio occupancy increased to 94.0% in 4Q22 (from 93.6% in 3Q22), with
better occupancy in Singapore (from 93.7% to 94.4%), driven by flatted
factories (92.0% to 93.3%), and business park buildings (83.0% to 83.3%).
Gross rents at SGD2.13 psfpm were flat QoQ and +3.9% YoY (vs +0.9% YoY
in 3Q22), while rental reversion remained positive at +1.1% (vs +1.0%).
MINT’s electricity hedges for its multi-tenanted properties are falling off
at end-May 2022, and management estimates 2-3% downside to its NPI with
costs expected to escalate at 2-3x.
Stable occupancy, rents for US data centres
US occupancy was stable at 93.3%, while its WALE remains high at 6.1 years
(from 6.3 years in 3Q22). Its US data centre tenancies were 34.1%/34.4%
of revenue/NPI in FY22 (up from 12.1%/12.8% in FY21), with fundamentals
supported by resilient demand growth and stable rents. More than half of
its expiring leases in FY23/24 held by AT&T (5.4% of gross rental income)
have been extended, and management is advancing backfilling initiatives
for the three assets (in San Diego, Milwaukee and Tennessee).
Strong balance sheet, DPUs cushioned by rising rates
AUM rose c.29% YoY to SGD8.8b with the addition of 29 US data centres,
which saw cap rates tighten by 50-125bps (to 5.00-6.75%). Gearing fell to
38.4% (from 39.9%) and its balance sheet remains strong with 6.4x interest
cover. Borrowing costs should rise from 2.4% in 4Q22, with a 50bps increase
in interest rate assumption lowering DPUs by c.1%. Management aims to
deepen its data centre core and further diversify its AUM, with accretive
deal opportunities supported by a SGD1.7b debt headroom (at 45% limit).