Date: October 2, 2024
Broker: Maybank Research Pte Ltd
Company Overview
Mapletree Industrial Trust (MINT SP) is the third-largest industrial sector S-REIT (Singapore Real Estate Investment Trust), managing a portfolio of 141 properties with an AUM (Asset Under Management) of SGD8.8 billion. The trust is backed by its sponsor, Mapletree Investments, a subsidiary of Temasek Holdings. It operates primarily in Singapore, Japan, and the US, with a significant portion of its assets concentrated in data centers, industrial properties, and high-tech buildings.
Recent Acquisition and Strategic Move
Mapletree Industrial Trust has upgraded its strategy by acquiring a mixed-use industrial facility in Tokyo, Japan for JPY14.5 billion (~SGD127.8 million). This acquisition offers strong redevelopment potential and is expected to deliver an NPI yield of 4%. The current tenant, a Japanese conglomerate, uses the asset for training and data center purposes. Management anticipates that if the lease is not renewed, redevelopment of the site could transform it into a data center by 2033/2034, with an expected IT load of 30-40MW and a yield-on-cost of 5.5-6%.
Financial Performance and Forecasts
Management has raised its forecasts for FY25 and FY26, increasing topline estimates by 0.2-0.5%. Net Property Income (NPI) is projected to rise steadily, with FY25E NPI expected to reach SGD540 million. However, borrowing costs are expected to decline by 9% due to falling interest rates, further boosting distributable income. Distributable income to unitholders is expected to grow by 8.0% and 8.2% in FY25 and FY26, respectively, reflecting increased cash flow from operations and acquisitions. The forecasted DPU (Distribution Per Unit) growth is 8.1% for FY25 and 8.2% for FY26.
Portfolio Strategy and Reconstitution
Mapletree Industrial Trust continues to focus on reconstituting its portfolio, with a strategic pivot toward data centers and high-tech assets. Its data center assets in Singapore, the US, and Japan are expected to account for 59% of its NPI by FY24, compared to 31% in FY20. Management has highlighted a stable growth strategy, combining assets with growth potential, supported by a robust pipeline from its sponsor. The trust also resumed its Distribution Reinvestment Plan (DRP) in 1Q24, enabling more flexible management of debt levels, and is targeting divestments of SGD200-400 million in the next 12 months.
Financing and Gearing
The Tokyo acquisition will be financed through JPY-denominated loans, with gearing expected to rise modestly to 39.8% from 39.1% as of June 2024. The trust maintains a strong balance sheet, with sufficient headroom to support further acquisition growth opportunities. Mapletree Industrial Trust is likely to continue executing its divestment pipeline, capitalizing on favorable market conditions to reduce debt and enhance shareholder returns.
Growth Drivers and Risks
Key growth drivers for the trust include falling interest rates, stronger rental reversion trends, and accretive acquisitions. The management’s strategy emphasizes coupling stable, income-generating assets with opportunistic acquisitions to enhance overall returns. Upside potential comes from accelerated leasing demand and improved occupancy across its portfolio.
However, risks include potential delays in economic recovery, lower tenant retention due to termination of long-term leases, and a sharper-than-expected increase in interest rates, which could raise debt servicing costs and impact earnings.
ESG Initiatives
Mapletree Industrial Trust has demonstrated a strong commitment to ESG (Environmental, Social, and Governance) practices. It has progressively reduced electricity and water usage across its Singapore properties and aims to cut Scope 2 GHG emissions in the long term. The trust has achieved BCA Green Mark Gold certifications for eight of its property clusters and introduced sustainability clauses in its leases for high-tech and business park buildings. Furthermore, MINT secured a maiden sustainability-linked facility in 2020, priced at 3.15%.
Conclusion
Mapletree Industrial Trust’s strategic moves, including the recent Tokyo acquisition, bolster its growth outlook. Its balanced portfolio of stable and growth assets, coupled with an opportunistic approach to acquisitions, positions it well for future expansion. Supported by favorable market conditions and strong ESG practices, the trust is set to deliver steady income and capital growth for unitholders over the coming years.
