MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)
Mapletree Industrial Trust - Data-driven Growth
Strong 1Q23, maintain BUY
- Mapletree Industrial Trust (SGX:ME8U)’s 1Q23 DPU rose ~4% y-o-y/flat q-o-q, driven by rising US data centre contributions, now at ~51% of AUM. The performance was in line with consensus and slightly above our estimates; we raise DPUs by 1-2% on stronger occupancies and rents, while our DDM-based target price for Mapletree Industrial Trust stays at S$3.00 (COE: 6.6%, LTG: 2.0%).
- Growth headwinds from inflationary pressures and rising interest rates are partly offset by retained capital distributions, and a strong balance sheet.
- Mapletree Industrial Trust's valuations are undemanding at ~5% yield, backed by improving fundamentals from better occupancies, recovering industrial rents, and higher DPU visibility from its rising data centre tenancies. BUY.
Better occupancies and reversions
- Mapletree Industrial Trust's portfolio occupancy increased to 95.3% in 1Q23 (from 94.0% in 4Q22), with improvements across all property segments in Singapore (with occupancy rising from 94.4% to 96.0%) and the US (from 93.3% to 94.0% data nosnippet).
- While gross rents in Singapore (at S$2.13 psfpm) were flat q-o-q and y-o-y (vs +3.9% y-o-y in 4Q22), rental reversion was better at +2.9% (vs +1.1% in 4Q22) from hi-tech (+2.0%), flatted factories (+2.2%), business park (+6.4%), as well as stack-up/ramp-up buildings (+0.8%), and set to strengthen into FY23.
Higher costs partly mitigated
- Mapletree Industrial Trust’s electricity hedges for its Singapore multi-tenanted properties had fallen off at end-May 2022, and management had earlier indicated that costs could rise by S$10-12m for FY23E, or 2-3% of DPU.
- We had pencilled in weaker net property income (NPI) margins into the coming quarters on the back of the cost escalation, even as higher service charges (which were raised 10% for air-conditioning) at the business park and hi-tech buildings from Jul for all its ongoing leases could help mitigate the cost pressure.
DPU cushioned from rising rates
- Mapletree Industrial Trust's gearing was stable at 38.4% and its balance sheet remains strong with 6.2x interest cover. Borrowing cost climbed to 2.5% in 1Q23 (from 2.4% in 4Q22) while fixed-rate debt rose to 72.3% (from 70.5%).
- We expect higher base rates (of 100bps), with a 50bps increase in interest rates lowering DPUs by < 1%.
- See
- Cap rates for data centre assets remain tight, according to management, and as such we see low visibility on third-party acquisition opportunities in the near term.
Chua Su Tye
Maybank Research
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https://www.maybank-ke.com.sg/
2022-07-26
SGX Stock
Analyst Report
3.00
DOWN
3.100
