4QFY22: Tactical Pause For Renewal And Rejuvenation
4QFY22 DPU grew 5.8% yoy, driven by the acquisition of 29 data centres in North
America. Outlook is positive as growth in power-constrained markets, such as Silicon
Valley and Northern Virginia, is likely to spill over to other markets within the US. MINT
is likely to pursue the acquisition of the remaining 50% stake in the second data centre
JV with Mapletree Investments in FY24. MINT provides attractive FY23 distribution yield
of 5.4% (KDCREIT: 5.0%). Maintain BUY. Target price: S$3.65.
RESULTS
• Mapletree Industrial Trust (MINT) reported DPU of 3.49 S cents (+5.8% yoy) for 4QFY22,
which is in line with our expectations.
• Accelerated growth from acquisitions of data centres in North America. Gross revenue
and NPI grew 35.5% and 35.3% yoy respectively in 4QFY22 driven by the acquisition of 29
US data centres completed on 22 Jul 21.
• Occupancies improved in Singapore. Portfolio occupancy edged higher by 0.4ppt qoq to
94% in 4QFY22. Occupancy for its Singapore portfolio improved by 0.7ppt qoq to 94.4%,
driven by Business Park Buildings (+0.3ppt qoq to 83.3%) and Flatted Factories (+1.6ppt
qoq to 93.6%). Occupancy for data centres was stable at 93.9%.
• Second consecutive quarter of positive rent reversion. Management estimates positive
rental reversion at 1.1% in 4QFY22. Leases were renewed at slightly higher rental rates for
Hi-tech Buildings at S$2.49psf/month (+2%) and Flatted Factories at S$1.72psf/month
(+0.6%). Retention rate was heathy at 83.9%. Gross rental rate for its Singapore portfolio
was stable at S$2.13psf/month.
• Data centres gain prominence. MINT recognised gain in fair value of its investment
properties of S$87m driven by data centres in North America due to compression of
capitalisation rate. Thus, data centres has grown and accounted for 54.1% of its AUM. NAV
per unit increased 12% yoy to S$1.86.
• Completed divestment of 19 Changi South Street 1. MINT has completed the divestment
of 19 Changi South Street 1, a two-storey light industrial building with a foyur-storey
extension block, for S$13m on 21 Apr 22. The property has 30-year land lease commencing
from 16 Nov 96 with an option to extend for another 30 years. The sale price is higher than
valuation of S$11.9m and purchase price of S$12.4m.
• Strong balance sheet. Aggregate leverage eased marginally by 1.5ppt qoq to 38.4% in
4QFY22 due to the revaluation gains. Interest coverage ratio remains healthy at 5.7x. Its
weighted average tenor of debt is 3.8 years and only 13.3% of its total borrowings are due
for refinancing in FY23. 70.5% of its total borrowings are hedged to fixed interest rates.
Management estimated that every 50bp increase in average all-in cost of debt has a
negative impact on DPU of 0.13 S cents.
STOCK IMPACT
• Uncertainties from higher inflation. Management sees headwinds from rising energy
prices and supply chain disruptions causing higher and more broad-based inflation. Inflation
could ease in 2H22 as developed countries respond with tightened monetary policy and
supply chain disruptions ease.
• Positive outlook for data centres. According to CBRE, average asking rental rates in
primary data centre markets in North America dipped 0.4% in 2021, while rental rates in
secondary markets dipped 2.0%. Inventory bottlenecks are likely to trigger rental rate
increases as demand grows in power-constrained markets, such as Silicon Valley and
Northern Virginia.
• Pursuing more growth through acquisitions of data centres. MINT has the right of first
refusal from the sponsor Mapletree Investments to acquire the remaining 50% stake in their
second data centre JV Mapletree Rosewood Data Centre Trust (MRODCT), which owns 13
data centres in the US. MINT is likely to pursue the acquisition in FY24 given the anticipated
volatilities in financial markets in FY23.
• Negative impact from higher cost of electricity. Triple net leases accounted for all leases
for data centres in Singapore and 90% of leases for data centres in North America (increase
in cost of electricity less dramatic due to diversified sources of energy). Thus, higher cost of
electricity does not have material impact on MINT’s portfolio of data centres. MINT’s multitenant buildings in Singapore are affected by higher cost of electricity. Management
estimated that operating expenses would increase by S$10m-12m if the cost of electricity
increases by 2-3x from the current S$0.15 per kWh to S$0.40-0.45 per kWh.
• Redeveloping the Kolam Ayer 2 Cluster. MINT commenced construction for the
redevelopment of the Kolam Ayer 2 Flatted Factory into a high-tech industrial precinct in Nov
20, which will raise its plot ratio to 2.5x (previously: 1.5x) and increase its GFA to 865,600sf
(+71%). It has secured pre-commitment from an anchor tenant (global medical device
company headquartered in Germany) for the built-to-suit facility on a 15+5+5 year term,
which accounts for 24.4% of the enlarged GFA.
• Completion of the 163 & 165 Kallang Way and 161 Kallang Way redevelopments are
expected in 2H22 and 1H23 respectively. Construction costs have increased 14% to
S$300m due to the COVID-19 pandemic but management remains confident in achieving
yield on costs of >7%.
• Healthy take-up for DRP. Take-up for MINT’s dividend reinvestment plan (DRP) was
healthy at 42.5% for 3QFY22 distribution. The DRP applies to 4QFY22 DPU of 3.49 S cents.
The issue price for new units is set at 1% discount to the 10-day volume-weighted average
traded unit price on the record date. The DRP will help MINT to gradually lower its aggregate
leverage and also finance progressive payments for development projects.
EARNINGS REVISION/RISK
• We trim our FY23 DPU forecast by 3% due to higher cost of debt and cost of electricity.
VALUATION/RECOMMENDATION
• Maintain BUY. Our target price of S$3.65 based on DDM (cost of equity: 5.75%, terminal
growth: 2.0%).
SHARE PRICE CATALYST
• Growth from data centres located in Singapore and North America.
• Acquisition of the remaining 50% stake in portfolio of 13 data centres (second JV) from
sponsor Mapletree Investments.