Analysts are split on Mapletree Industrial Trust’s lower DPU but strong rental reversions

Analysts are split about Mapletree Industrial Trust (MINT) after its 1QFY2024 results that ended on June 30.

In the last period, the trust’s dividend per unit (DPU) dropped 2.9% y-o-y to 3.39 cents. However, it had an 1.8% q-o-q increase, which is in line with forecasts for OCBC Investment Research (OIR), DBS Group Research and CGS-CIMB, which have remained with the “add” as well as “buy” call. The only exception is Maybank Securities, which noted MINT’s stable DPU, retained their “hold” calling.

Lentor Hills Residences Guocoland Hong Leong has been sold to a joint venture between GuocoLand and TID at S$585.6 million, equivalent to S$1 060 per square foot per plot ratio (psf ppr).

MINT reported increase in gross revenue as well as net property income (NPI) of $170.6 million and $130.8 million, which represents an increase of 1.7% and 0.7% increase over the last year. The main reason for this was the effect of leases on new properties and was then balanced by the increase in utilities and maintenance expenditures. Since borrowing costs increased by 100 basis points (bps) over a period of time this resulted in an 2.9% decrease in MINT’s DPU.

In accordance with the REIT’s forecast, each 100 basis point increase in the base interest rate is likely to affect their pro forma 1QFY2024 DPU of -1.4%.

Of all the brokerages that offer research, the team at OIR remains the most optimistic regarding MINT’s future prospects, and has an increase of the target price of $2.77 up to $2.78. MINT’s DPU for the 1QFY2024 period was in the range of 25.4% of its initial FY2023 projection.

In the report, which was released on July 27th in its report, the OIR team is impressed by MINT’s “sizeable portfolio” of industrial assets in Singapore in addition to its strong data centers portfolio throughout both the US in addition to Canada.

According to MINT’s staff, MINT offers investors “a way to get a glimpse of the rapidly growing digitalisation and outsourcing of data trends”.

The team also points out that MINT had positive rental reversions in renewal leases despite the fact that its occupancy rate is still in a state of decline.

MINT’s total portfolio weighted average rental returns stood at 5.3%, and its average rental rate for its Singapore and North American portfolios rose 0.9% and 0.4% q-o-q to $2.18 per square foot (psf) per month, and US$2.41 ($3.20) per month, respectively.

In the 1QFY2024 quarter MINT’s portfolio occupancy rate fell for the second straight quarter, falling 1.6 percentage point (ppt) in q-o -q time in the range of 93.3%, where both Singapore (-1.7 ppt q-o.q. up to 93.7%) and North America (-1.3 points q-o-q, up to 92.4%) contributed to the decline. OIR is aware that MINT’s management sees some of these vacant positions as temporary.

“After we have refined our assumptions that include incorporating MINT’s proposed purchase of the data center located in Osaka in Japan for JPY52 billion ($507.9 million) our fair value estimate is a bit higher to $2.77 and $2.78,” writes the OIR team.

However CGS-CIMB is keeping their price target for MINT at the same $2.61 on the basis the fact that they’ve got “a solid balance of assets” in addition to “increasing exposure to new economic sectors”.

Lock Mun Yee and Natalie Ong say that MINT’s planned buying Osaka Data Centre Osaka data centre would raise MINT’s exposure to data centers to 56.3% of FY2023 assets under management (AUM). They point out that MINT said that even though current costs for data centres are less than they were two years ago, prices are still quite high contrasted with current funding levels. MINT also stated that it could consider looking at high-tech properties focused on the research and development (R&D) or life sciences as per the analysts.

Lock and Ong add that by incorporating additional Japanese loans in yen that are used to finance the purchase the Osaka data centre, the total financing cost will decrease in the coming quarters.

“We increase the FY2024-FY2026 DPU by 0.4-1.24% to factor in the Osaka acquisition, the enlarged base of units in the wake of this year’s private placement and updating our model following the publication of its 3MFY2023 annual report. Our dividend discount model-based TTP is kept as $2.61.”

In the same way, DBS analysts Derek Tan and Dale Lai have maintained their “buy” decision on MINT however, they have lowered their price target by $2.70 down to $2.60.

Tan and Lai both say they prefer MINT because of its attractive yields around 60% However, it is important to note that investors are likely to focus on the short-term risk factors due to the expiry on the AT&T lease that they have flagged with a price.

This AT&T lease is set to expire in the next two years. It currently accounts for around 5.3% of gross rental earnings as of June 2023.

“We are aware that AT&T currently operates three data centers and is likely to transfer the space back to MINT in the 3QFY2024 and 3QFY2025 in the respective years. Even though there is a small risks in the short future, we want to be sure that MINT is currently looking to rent the space out and is currently in negotiations with other tenants to pick vacant spaces or consider selling or repositioning the property to be used for different purposes.” According to them.

And finally, Maybank analysts have maintained their “hold” call with an unaffected target price of $2.30 after adjusting the DPU estimates to approximately 0.3% reflecting operating trends.

“With locally, the manufacturing industry suffering a slowdown, there is a potential for non-renewal of certain US leases, and a flims financing climate.” Says Krishna Guha of Maybank.

Guha states that even though MINT’s dividend yield of 5.7% is relatively high for industrial S-REITs with large caps the manufacturing sector is slowing and a tense funding environment keep MINT on the sidelines.

At 11.55am the shares of Mapletree Industrial Trust are trading 3 cents lower, or 1.32% down at $2.24.