Date: October 2, 2024
Broker: Maybank Research Pte Ltd
Company Overview
Mapletree Industrial Trust (MINT SP) is a leading industrial sector S-REIT with a diverse portfolio of 141 properties. The trust has a global footprint, owning industrial assets in Singapore, Japan, and the US, and is backed by its sponsor, Mapletree Investments (Temasek Holdings). The portfolio includes hi-tech industrial properties, data centers, and multi-tenant assets, which provide strong income visibility and growth potential.
Recent Developments
Tokyo Acquisition and Redevelopment Opportunity
MINT recently acquired a freehold industrial facility in Tokyo, Japan, for JPY14.5 billion (~SGD127.8 million). The acquisition is part of a strategic move to expand its presence in the data center sector. This mixed-use facility includes a training center, ancillary data center space (28% of GFA), and on-site accommodation (24% of GFA). The asset is located in a data-center cluster in west Tokyo, which holds about 40% of Greater Tokyo’s IT supply.
This acquisition offers a significant redevelopment opportunity. The current lease may not be renewed in five years, allowing MINT to potentially redevelop the site into a data center by 2033/2034. Management projects the new development could handle 30-40MW of IT load and deliver a yield-on-cost of 5.5-6%.
Financing and Gearing
The acquisition will be financed through JPY-denominated loans, increasing the trust’s pro-forma gearing to 39.8%, up from 39.1% as of June 2024. MINT resumed its Distribution Reinvestment Plan (DRP) in the first quarter of 2024, which could help lower gearing gradually. Additionally, the management has a divestment pipeline worth SGD200-400 million, which it plans to execute over the next 12 months, benefiting from favorable market conditions.
Financial Performance
Revenue and Profitability
MINT’s revenue for FY23 reached SGD685 million and is forecasted to grow to SGD724.9 million in FY25 and SGD780.5 million in FY27. Net Property Income (NPI) is also expected to rise steadily, with projections showing SGD540.1 million in FY25 and SGD581.5 million in FY27.
Core net profit is estimated to grow by 9.4% in FY25 to SGD358.8 million and further to SGD398.9 million by FY27. Distribution Per Unit (DPU) is forecasted to increase from 13.6 cents in FY23 to 14.3 cents in FY27, supported by ongoing redevelopment projects and data center acquisitions.
Debt and Cash Flow
MINT maintains a strong balance sheet with an estimated SGD1.7 billion in debt headroom, assuming a 45% aggregate leverage limit. The trust’s cash flow from operations reached SGD448.1 million in FY23 and is projected to increase to SGD499.9 million by FY27. Free cash flow yield for FY27 is expected to be around 7.1%.
Growth Strategy
Data Center Expansion
MINT has been strategically increasing its exposure to the data center market, with current plans to ramp up its data center assets under management (AUM). In 1Q24, management reiterated its commitment to growing its data center portfolio. The current acquisition in Tokyo aligns with this strategy, providing stable income streams while allowing for future growth potential.
Portfolio Reconstitution
The trust has actively reconstituted its portfolio over the years, including the divestment of lower-yielding assets and acquisitions in high-growth sectors like data centers. In FY24, MINT’s management stated its goal of coupling stable assets with growth potential, which is evident from its strategic acquisitions in Japan and the US.
Risks and Opportunities
Upside Potential
MINT’s growth is expected to be driven by favorable market conditions, including lower interest rates and a strong pipeline of acquisitions. Accretive acquisitions, earlier-than-expected leasing demand recovery, and better-than-anticipated rental reversions could provide upside potential to MINT’s earnings.
Downside Risks
However, potential risks include a prolonged slowdown in global economic activity, which could reduce demand for industrial space. Additionally, a sharper-than-expected rise in interest rates could increase financing costs, impacting earnings and valuations.
ESG and Sustainability Efforts
MINT continues to integrate Environmental, Social, and Governance (ESG) factors into its operations. The trust has set targets to reduce its electricity and water intensity across its Singapore properties and plans to increase solar energy generation. Several of its assets have received BCA Green Mark Gold certifications. MINT also achieved its first sustainability-linked facility by issuing SGD300 million in perpetual securities in May 2020, priced at 3.15%.
Conclusion
Mapletree Industrial Trust’s strategic expansion into data centers, strong financial performance, and proactive portfolio reconstitution provide a compelling investment case. With its recent Tokyo acquisition and redevelopment potential, the trust is well-positioned for future growth while maintaining a stable and diversified portfolio across key global markets.
