New leases within the high-tech segment of Mapletree Industrial Trust (MINT)’s Singapore portfolio have contributed to an uptick in the REIT’s performance, says CGS-CIMB Research analysts.

Lock Mun Yee and Eing Kar Mei are maintaining their “hold” call on the REIT, with an unchanged target price of $3.03 and a 5.4% upside.

CGS-CIMB also tweaked up MINT’s distribution per unit (DPU) by 0.041% for FY2021F, 0.182% for FY2022F and 0.152% for FY2023F in the Jan 29 note.

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“Portfolio occupancy ticked up slightly q-o-q to 93.1% at end-3QFY2021, led by a 0.7% pt pick-up in Singapore portfolio occupancy to 92.2% while average Singapore rents increased 3.9% q-o-q, thanks to higher rents signed for new leases within the high-tech segment,” write Lock and Eing. 

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While rent arrears remain stable q-o-q at 1.4% of the previous 12 month’s revenue, MINT guided that it expects to give additional tenant rent reliefs in 4QFY2021, on top of the $9 million of rent relief it has extended YTD. 

“Looking ahead, MINT has 2.6%/16.1% of its gross rental income to be renewed in 4QFY21F and FY2022F respectively. Management expects operating conditions to remain challenging and drag on rents to persist over the next few quarters,” says the analysts.

MINT reported a 20.5%/20.8% y-o-y rise in 3QFY2021 revenue and net property income (NPI) to $123.7 million and $98.9 million respectively, due to the consolidation of the 14 US data centres (DC). This was also partly offset by the impact of rental rebates extended to tenants and loss of income from redevelopment of Kolam Ayer 2 (KA2). 

3QFY2021 DPU of 3.28 cents, up 3.8% y-o-y, represents an approximately 95% payout ratio. 

MINT’s property portfolio comprises 87 industrial properties in Singapore and 27 data centres in North America (through the joint ventures with Mapletree Investments). The properties in Singapore include high-tech buildings, flatted factories, business park buildings, stackup/ramp-up buildings and light industrial buildings.

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As at March 31, 2020, MINT’s total assets under management was $5.9 billion. MINT is managed by Mapletree Industrial Trust Management and sponsored by Mapletree Investments.

Acquisitions and redevelopments

In terms of inorganic growth, MINT announced the proposed acquisition of a DC and office in Virginia, US for US$200.6 million – US$262.1 million. According to management, the deal is expected to complete in 1Q2021F. 

In addition, divestment of 26A Ayer Rajah Crescent for $125 million is slated for completion in 2Q2021. Meanwhile, the planned redevelopment of KA2 into a new hi-tech industrial precinct commenced construction in late-November 2020 and completion scheduled for 2H2022F. MINT guided that the total development cost for KA2 has increased to $300 million (from $263 million previously) due to higher construction costs. 

“Nonetheless, we believe benefits from future-proofing its portfolio remain intact and management maintains its target to achieve at least 7% yield on cost from this redevelopment exercise. With gearing of 37.3% at end-3QFY2021, MINT is well positioned to continue to tap into inorganic growth opportunities, in our view,” say Lock and Eing. 

Solid financial position

OCBC Investment Research analyst Andy Wong sees a rosier picture for MINT, owing to its “solid financial position, high quality management and strategy”.

In a Feb 1 note, Wong recommends to “buy” MINT with a fair value of $3.51.

“Although the macroeconomic outlook remains subdued, MIT’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, in our view,” writes Wong.

That said, rental reversions for renewal leases came in broadly negative in 3QFY2021, notes Wong.

Rental reversions stood at -10.0% for Business Park Buildings, -4.5% for Stack-Up/Ramp-up Buildings, -2.7% for Flatted Factories and -1.7% for Hi-Tech Buildings. 

“The larger than usual negative rental reversions for its Business Park Buildings segment was due to a one-off tenant support, excluding which rental reversions would have been around -5%. Looking ahead, management expects rental reversions to remain negative for the next two to three quarters, with pressure largely coming from its Flatted Factories segment,” Wong notes. 

As at 11am, units in Mapletree Industrial Trust are trading 2 cents lower, or 0.70% down, at $2.83.