SINGAPORE (Apr 28): REITs have fallen prey to the broad-based market sell-off recently, but analysts are banking on one REIT with a resilient data center portfolio and resilient operating metrics to buck the trend.
For 4QFY2019 ended March, Mapletree Industrial Trust (MINT) booked a distribution per unit (DPU) of 2.85 cents, a year-on-year decline of 9.8%. Despite the minor stumble posed by the Covid-19 uncertainties, the REIT’s full-year distribution came in at 12.24 cents, a marginal 0.7% higher than a year ago.
See: Mapletree Industrial Trust reports 9.8% drop in 4Q DPU to 2.85 cents
DBS Group Research analyst Derek Tan notes that MINT has retained some $6.6 million in distributions as a buffer for uncertainties ahead, leading to a fall in final DPU figures for the quarter.
Yet, there appears to be no reason for investors to panic as Tan argues that the REIT’s financial and operational metrics remain sound.
MINT’s portfolio occupancy rates remained stable at 91.5%, up from 90.9% in 3QFY19. Overall retention rate, too, stood at 78% for the quarter. Additionally, occupancy rates in Singapore came in at 90.7% for the quarter with improvement across most asset classes such as hi-tech, business parks and strategy buildings.
Due to its diversified portfolio, Tan says MINT is unlikely to bear the brunt of any industry-specific concentration risks, meaning that performance is likely to remain stable across market cycles.
All in all, the brokerage remains “excited” about the outlook for MINT, and is choosing to remain optimistic on its prospects in the near term.
“The REIT’s asset diversity and contribution from its recently acquired data center portfolio should push distributions higher,” says Tan.
The brokerage notes that MINT has been improving portfolio quality through strategic moves in the data centre space. Analysts are positive on acquisitions such 18 Tai Seng, Paya Lebar iPark and two portfolios of data centers in the US.
“We see a concerted effort to upgrade its portfolio to better-specification properties (data centres, high-specification industrial properties, business parks), which will help MINT to maintain its premium P/NAV multiples to the market,” says Tan.
“Concerns on the weakness from its flatted factory portfolio will dissipate over time as its exposure to this asset class gets diluted on the back of its acquisition activities,” he adds.
MINT is also likely to get a boost from ongoing asset rejuvenation from the development of Kolam Ayer 2 cluster which is slated for completion in 2HFY2022, as well as the acquisition of 13 data centers in the US together with its sponsor.
“While timing may be delayed till a more stable outlook post Covid-19, the availability of a pipeline remains an attractive prospect for investors,” says Tan.
In addition, investors can also look forward to better-than-expected rental reversions and acquisitions that will boost the counter’s share price.
According to Tan, the redevelopments of Telok Blangah cluster into a built-to-suit project for Hewlett Packard, as well as the building of 30A Kallang Place property on top of a carpark are visible development opportunities with earnings upside in the medium term for MINT.
“These developments would be value-accretive to MINT, allowing it to extract unutilised plot ratios and additional gross floor area (GFA) for lease,” says Tan.
“On its books is another opportunity with the Kaki Bukit cluster, which when executed should drive significant upside in valuations and earnings in the medium term,” he adds.
DBS is reiterating its “buy” call on MINT with a target price of $2.70, representing an 11% upside for the stock.
As at 4.04pm, units in MINT are trading four cents higher, or 1.6% up, at $2.48. This translates to a price-to-earnings (P/E) ratio of 20.6 times and a dividend yield of 5.1% for FY2021F according to DBS valuations.
