Analysts from five brokerages have mantained their "buy" or "add" calls on Mapletree Industrial Trust (MINT), although DBS Group Research, OCBC Investment Research and Maybank have lowered their target prices on the stock.
This comes after the REIT reported a 10% y-o-y increase in its distribution per unit (DPU) of 13.8 cents for the FY2022 ended March.
The REIT also reported an increase of 36.4% and 34.5% in gross revenue and net property income to $610.1 million and $472.0 million respectively.
However, DBS’s Derek Tan and Dale Lai lower their target price on MINT from $3.35 to $3.05, as they lower their earnings estimates on higher utility costs and higher discount rate assumptions.
Nevertheless, they think the REIT, as it stands, has “attractive valuations not to be missed” and sees “value emerging”, adding that the recent correction has brought P/NAV down to 1.3x with forward yields of 5.3%-5.5%, close to average levels.
Lai and Tan add that MINT now derives about 51% of its asset under management (AUM) from data centers and will continue to add strategically in this space.
See also: MINT reports 10% higher DPU for FY2021, 4Q dividend of 3.49 cents
“We like MINT for its resilience and steady growth profile amid the current market volatility, a welcome trait in these uncertain times.”
Furthermore, with a long weighted average lease expiry (WALE) and 3% CAGR in DPU over the FY2023-2024 post-earnings revision, they believe that MINT should trade like a data-centre proxy.
The analysts also say that while MINT continues to tap its sponsor for acquisition-led growth given the competitive landscape, they also see its manager looking within the portfolio to optimise total returns.
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This is as the REIT plans further enhancement and redevelopment of its flatted factory portfolio into quality industrial properties, which will augment its NAV upside.
However, Lai and Tan warn that in the short term, the spike in utility costs would have a negative impact on margins in the coming quarter when utility contracts are due for renewal in June 2022 (1QFY2022).
“Utility costs as a percentage of revenues is estimated at [around] 1% of revenues and is projected to increase by 2x-3x when the contracts come due, per guidance from the manager. As such we have also cut our estimates (for FY2023) to account for this hike in utility costs in our estimates,” they write.
OCBC Investment Research's team have also lowered their target price from $3.30 to $3.05, saying although the macroeconomic outlook remains uncertain, MINT’s "solid financial position, high quality management team and strategy of scaling up its data centre and Hi-Tech exposure" would allow it to better withstand the uncertainties ahead.
The team also points out that MINT has grown its data center portfolio in US, offering investors a proxy to the fast-growing digitalisation and data outsourcing trends.
As for utility costs, OCBC says that MINT's management mentioned during its analyst briefing that its data centre assets in North America and Singapore are mostly on triple-net leases, and thus tenants are responsible for their own electricity costs.
The main impact will come from its multi-tenanted properties in Singapore. Utility costs amounted to about $6 million for MINT in FY22, which is less than 5% of its property operating expenses.
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Its fixed tariff rate contract is expiring at the end of May 2022, and upon entering into new utility contracts, the management expects such costs to potentially double or triple, which could result in a -2% to -3% impact on its net property income (NPI).
Maybank's Chua Su Tye, who is the third analyst to lower her target price on the stock from $3.35 to $3.10, as rising borrowing costs will affect the REITs' DPU.
Chua says borrowing costs should rise from 2.4% in 4QFY2022, with an assumption of 50 basis points lowering DPUs by about 1% alone. This will be partly offset by retained capital distributions, and a strong balance sheet. Gearing fell to 38.4% (from 39.9%) and its balance sheet remains strong with 6.4x interest cover.
Meanwhile, Citibank’s Brandon Lee has given MINT a target price of $3.15, highlighting that rent reversions for MINT remained positive for the second straight quarter at +1% compared to 0.9% in 3QFY2021, while noting improvements in occupancy. Its Singapore portfolio occupancy improved 0.7% percentage points q-o-q to 94.4%.
On the other hand, MINT’s US portfolio occupancy was flat q-o-q at 93.3%, which suggests some of the vacancies, including third-largest 250 Williams Street which was around 65% occupied the preceding quarter have yet to be filled up.
Some risks that he sees for the REIT are any sharp rise in interest rates, which could increase the cost of debt and hence lower MINT’s DPU while raising its cost of capital.
In addition, any sharp slowdown in economic activity could reduce demand for industrial property space and hence affect the occupancy and rental rates of MINT's properties. This would in turn affect DPU and valuations.
“If either of these risk factors has a greater downside impact than we anticipate. the share price will likely have difficulty attaining our target price,” Lee concludes.
Separately, CGS-CIMB's Lock Mun Yee maintains her target price on MINT at $3.08, highlighting that the DPU for 4Q and the full year surpassed her expectations, standing at 26.7% and 105.8% of their FY2022 forecast.
While she also broadly agrees with the points above, "We continue to like MINT’s portfolio diversification strategy into new economy assets," Lock points out.
For Lock, better-than-projected rental reversions could be a rerating catalyst for MINT, while a downside risk would be a protracted recovery from the Covid-19 pandemic, leading to a longer recovery period for vacancies and rentals.
UOB Kay Hian, in a May 9 report, called its 4QFY2022 a "tactical pause for renewal and rejuvenation", trimming its target price from $3.72 to $3.65.
Analyst Jonathan Koh says while there are uncertainties from inflation, the 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.
Furthermore, he also highlights that MINT is likely to pursue the acquisition of the remaining 50% stake in the second data centre JV with Mapletree Investments in FY2024. He is rreferring to the Mapletree Rosewood Data Centre Trust , 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.
As at 12.42pm, units of MINT are trading at $2.64, with a FY2023 dividend yield of 5.4% and P/E ratio of 19.4x, according to DBS.
