Analysts are mixed on Mapletree Industrial Trust (MINT) ME8U , following its results for the 1QFY2024 ended June 30.
During the quarter, the trust’s distribution per unit (DPU) dipped 2.9% y-o-y to 3.39 cents, but had a 1.8% q-o-q increase, which is in line with the expectations of OCBC Investment Research (OIR), DBS Group Research and CGS-CIMB Research, who have kept their “add” and “buy” calls. Only Maybank Securities, which noted MINT’s stable DPU, has kept its “hold” call.
MINT reported a higher gross revenue and net property income (NPI) of $170.6 million and $130.8 million respectively, which is a 1.7% and 0.7% increase y-o-y. This was largely led by the contribution of new leases, which were then offset by higher utilities and maintenance expenses. As borrowing costs rose 100 basis points (bps) y-o-y, it led to a 2.9% decrease in MINT’s DPU.
Based on the REIT’s, every 100 bps increase in base interest rates is expected to negatively impact its pro forma 1QFY2024 DPU by -1.4%.
Among the brokerages, the research team at OIR remains the most upbeat on MINT’s outlook, with an increased target price from $2.77 to $2.78. MINT’s DPU for the 1QFY2024 stood at 25.4% of its initial FY2023 forecast.
In its report dated July 27, the OIR team likes MINT’s “sizeable portfolio” of industrial assets in Singapore as well as its successful data centres portfolio in the US and Canada.
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To the team, MINT offers investors “a proxy to the fast-growing digitalisation and data outsourcing trends”.
The team also notes that MINT achieved positive rental reversions for its renewal leases although its occupancy rate remains under pressure.
MINT’s overall portfolio weighted average rental reversions 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) psf per month, respectively.
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For the 1QFY2024, MINT’s portfolio occupancy rate declined for a second consecutive quarter, slipping 1.6 percentage points (ppt) q-o-q to 93.3%, where both Singapore (-1.7 ppt q-o-q to 93.7%) and North America (-1.3 ppt q-o-q to 92.4%) contributed to the fall. OIR notes that MINT’s management views some of these vacancies as transitory.
“After fine-tuning our assumptions which include factoring in MINT’s proposed acquisition of a data centre in Osaka for JPY52 billion ($507.9 million), our fair value estimate inches up from $2.77 to $2.78,” writes the OIR team.
On the other hand, CGS-CIMB has maintained their target price for MINT at an unchanged $2.61, on the account that they have “a healthy balance sheet” and “increasing exposure to the new economy sectors”.
Lock Mun Yee and Natalie Ong say that MINT’s proposed acquisition of the Osaka data centre would increase its exposure to data centres to 56.3% of FY2023 assets under management (AUM). They note that MINT indicated that while current prices of data centres are lower than two years ago, pricing is still tight when compared to current funding levels. MINT highlighted that it may also look at hi-tech properties catering to research and development (R&D) and life sciences, according to the analysts.
Lock and Ong add that with the addition of more Japanese yen loans taken to finance the purchase of the Osaka data centre, the overall blended funding cost should trend down over the next few quarters.
“We raise FY2024-FY2026 DPU by 0.4-1.24% to factor in the Osaka acquisition, enlarged units base following the recent private placement as well as update our model post the release of its 3MFY2023 annual report. Our dividend discount model -based TP is maintained at $2.61.”
Likewise, DBS analysts Derek Tan and Dale Lai have maintained their “buy” call on MINT, but lowered their target price from $2.70 to $2.60.
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Tan and Lai say that they like MINT for its attractive yields of about 60%, but note that investors will likely focus on near term risk factors from the expiry of the AT&T lease, which they have flagged out and priced in.
The AT&T lease is expected to expire in the coming two years, and it currently contributes to about 5.3% of gross rental income as of June 2023.
“We understand that AT&T currently occupies three data centres and will most likely return the space to MINT in 3QFY2024 and 3QFY2025 respectively. While faced with slight earnings downside risk in the immediate term, we seek comfort that MINT is actively looking to re-let the space and is in advanced negotiations with other tenants to take up expiring spaces or could look to divest or reposition the property for other uses.” they say.
Finally, Maybank analysts have maintained their “hold” call at an unchanged target price of $2.30, after tweaking their DPU estimates to about 0.3% reflecting operating trends.
“With the local manufacturing sector experiencing a slowdown, possibility of non-renewal for some US leases and a fluid funding environment.” says Krishna Guha of Maybank.
Guha notes that while MINT’s dividend yield at 5.7% is relatively high among large-cap industrial S-REITs, a slowing manufacturing sector and fluid funding environment keeps him on hold.
As at 11.55am, shares in Mapletree Industrial Trust are trading 3 cents lower or 1.32% down at $2.24.
