Alert!> Mapletree Industrial Trust: Don’t stop Believin
- 9MFY24 DPU of 10.07 Scts (-1.7%), slightly ahead of forecasts
- Financial position resilient; active debt management saw dip in interest costs (c.3.1%, -0.1% q-o-q)
- Operations outlook steady; reversions maintained at c.7.0%; backfilling of vacated space in the USA data-centers a catalyst for earnings upturn.
- BUY, TP S$2.60 maintained
What has happened
(+) Stable DPU of 10.07 Scts (-1.7% y-o-y), slightly ahead of estimates. Mapletree Industrial Trust (“MINT”) reported another quarter of resilient returns with 3QFY24 DPU of 3.36 Scts (-0.9% y-o-y , +1.2% q-o-q). For 9MFY24, MINT’s DPU including gains 10.07 Scts (-1.7% y-o-y), which is tracking 77% of our full year estimates of 12.9 Scts, implying a good chance of an earnings beat. The strong performance was mainly strong capital management, keeping cost of debt stable at 3.1% (-0.1% q-o-q), compared to our projections of 2.3%. On 9MFY24 basis, gross revenues and net property income was marginally higher at c.0.9% and 0.1% higher y-o-y at S$518.6m and S$389.3m respectively, in line with expectations. The higher performance was driven by higher rentals achieved, new income from the lease-up of Mapletree Hi-Tech Park @ Kallang Way and the contribution from Osaka DC, offset the weakening USD/SGD exchange rate and loss of income from non-renewal of leases, mainly in the USA.
Our view
(+) Resilient financial metrics.
MAS leverage ratio saw a slight uptick to 38.6% (+0.7% q-o-q), with (debt + perpetual) / asset ratio stable at 38.9%, as the manager took on more loans to fund the acquisition of Osaka data-centre, Japan. We note that these ranges remain conservative at < 40%, implying the managers’ conservative financial management style. Overall interest cost saw a slight dip to 3.1% (-0.1% q-o-q) mainly due to slight change in debt currency mix (Japan debt to fund its Osaka DC). Looking ahead, management expects that overall cost of debt to still rise, as hedges roll off through 2024 to c.3.5% levels in the coming year, which is within our projections. As such, interest coverage ratio (“ICR”) remains stable and comfortable at 4.7x (vs 4.8x a quarter ago) and our calculated adjusted EBITDA ICR ratio (accounting for perpetual securities distributions) is at c.3.9x, flat q-o-q.
(+) Improved operating metrics; although slight uptick.
Portfolio performance remained stable with average rentals for its Singapore properties rising to c.S$2.21psf pm. Positive rental reversions seen in all segments in Singapore, with an average rental reversion maintaining at c.7.0% (vs 8.8% a quarter ago) while MINT’s data-centers in the US seeing a slight dip in occupancies to c.91.0% (vs 93.4% a quarter ago). In Singapore, 165 Kallang Way, continued to see gradual lease up with commitment rates to c.51% (vs 48% a quarter ago).
(-) US data-centers of focus.
The impact of the return of space from AT&T lease has been partially felt in the current quarter as two datacenters (of a total of 3 datacenters) will be returned to MINT progressively in the quarter, and the Manager remains in advanced negotiations with a replacement tenant to take up one spaces but have yet to have any updates on that front. In addition, the conclusion of the sale of Cyxtera leased datacenters to Brookfield have resulted in MINT being able to collect past arrears from the tenant post lease re-negotiation with an estimated US$2m boost to revenues, albeit one off in 4QFY24. The downtime from higher vacancy rates have been priced in our estimates and we remain comfortable with our projections.
Attractive returns, BUY, TP S$2.60 (+11% total return).
MINT share price have dipped by 3.0%, in line with the dip in the FSTREI index. While seen as a bellweather for the S-REITs given its diversified exposures in SG, US and Japan, investors have always preferred to stay with MINT for its pivot to the growing datacenter subsector, which remains on a firm upward growth trend. Overall, we believe that valuations remain inexpensive at c.1.3x P/B and a FY24F-25F yield of c.5.4%, slightly higher than historical averages. We see investors gravitating towards MINT in the event that overall economic conditions remain tepid as its diversified portfolio have been proven to be able to weather through downturns. BUY, TP S$2.60.
Key items to watch
- Lease-up of spaces at recently completed development project in Singapore, (ii) Backfilling of returned DC space in the US and (iii) overall drop in interest costs outlook.