Occupancy and reversions trending up
- 1QFY3/23 DPU of 3.49 Scts was in line, at 25.1% of our FY23 forecast.
- Better portfolio occupancy and stronger Singapore rental reversion qoq.
- Reiterate Add with a lower TP of S$2.97.
1Q23 results highlights
MINT reported a 31%/11.4% yoy rise in 1QFY3/23 revenue/distribution income to S$167.8m/S$92.1m, due largely to acquisition of a US data centre (DC) portfolio in North America, partly offset by higher borrowing costs and management fees. 1Q DPU rose 4.2% yoy, but was flat qoq, to 3.49 Scts on higher contributions and distribution of divestment gains from 26A Ayer Rajah Crescent. NPI margin averaged 77.4% (vs. 81.8% in 1QFY22), impacted by higher utilities cost. MINT’s gearing stood at 38.4% at end-1Q. An estimated 72.3% of its debt has been hedged into fixed rates and management indicated that a 50bp increase in average funding cost could erode DPU by 0.02-0.03 Scts/quarter.
Portfolio occupancy higher qoq, stronger reversions in Singapore
Portfolio occupancy ticked up 1.3% pt to 95.3% in 1Q, with Singapore portfolio occupancy at 96%. The improvement was across the board with the strongest pick-up from business parks and flatted factories. MINT enjoyed positive rental reversions of 2.9% in 1Q (vs. 1.1% in 4Q), mainly coming from hi-tech buildings, business parks, flatted factories and stackup-ramp-up properties. Looking ahead, MINT has 10.6%/18.3% of its gross rental income to be renewed in 9MFY23 and FY24F, mainly from its Singapore flatted factories, hi-tech buildings and US data centres. Management retained a cautious outlook on rental reversion citing macro uncertainties and would adopt a tenant retention strategy for its portfolio. In addition, management indicated that higher utilities costs would likely impact margins as its contracts were renewed towards end of 1QFY23. We estimate the increase in utilities cost could amount to c.2-3% of NPI margin per quarter and have reflected this in our current projections. Meanwhile, the redevelopment of Kolam Ayer Cluster 2 is under way and is scheduled to be completed in 1HFY23.
Stable US performance
MINT’s US DC portfolio had an average occupancy of 94% as at end-1Q. In Jun 22, it completed the divestment of a data centre property in Michigan for US$10m. The property accounted for 0.3% of MINT’s FY22 gross revenue and proceeds from the sale will be deployed to fund working capital or to reduce debt. MINT still remains on the lookout for inorganic growth opportunities, although it indicated that cap rates for US data centre assets are still compressed and transactional activity has slowed.
Reiterate Add rating
We keep our FY23-25F DPU estimates unchanged but tweak down our DDM-based TP to S$2.97 as we adopt a slightly higher cost of capital of 7.49% (vs. 7.21% previously). We continue to like MINT’s portfolio diversification strategy into new economy assets. Potential re-rating catalyst: better-than-projected rental reversions. Downside risk: global slowdown that could lead to a longer recovery period for vacancies and rentals.