SINGAPORE (July 25): Mapletree Industrial Trust (MIT) saw a strong set of 1Q20 results, thanks to continued investment in new and refurbished assets.

See: Mapletree Industrial Trust posts 3.3% rise in 1Q DPU to 3.10 cents

This includes local properties such as 18 Tai Seng, 30A Kallang Place and the newly-built data centre at Mapletree Sunview 1 as well as its strong presence overseas.

In the US, the REIT has a 40% stake in a portfolio of 14 data centres -- worth US$300 million ($409 million) – with an eye on acquiring the remaining 60% stake which is estimated to be worth US$450 million.

Although MIT’s US data centre occupancy is holding steady at 97.4%, management is eyeing further investments as growth prospects there are backed by rising demand. Between 2017 and 2023, leased supply and demand -- by operational sf -- are expected to rise at 4.6% and 7.6% CAGR.

Elsewhere, MIT is also ready to raise its overseas exposure from 20% to 30% of assets under management (AUM) through incremental data centre investments and third-party deals in Europe and Asia – both of which would result in DPU growth.

Amid a slowing economy, MIT is keeping a strong balance sheet relative to its peers, with an aggregate leverage of 33.4% and a debt headroom of between $0.7 billion and $1.2 billion to pursue inorganic growth opportunities.

Over the next two financial years, the planned redevelopment of Kolam Ayer Cluster 2 will raise gearing to 36%-37%.

Looking ahead, analysts say MIT promises strong growth prospects as its DPUs seem supported by recovering leasing demand and growth visibility from a more resilient portfolio.

Research houses Maybank Kim Eng and DBS Group Research are bullish on MIT, maintaining their “buy” calls with target prices of $2.40 and $2.50 respectively.

However, CGS-CIMB Research says MIT is trading at 1.5x book value with a yield of 5.6% for FY20F. This is more than 2 s.d. above the historical 7-year averages of 1.2x and 6.9%, respectively.

This means a sharper-than-expected rise in interest rates might increase debt costs and negatively impact earnings, with higher cost of capital lowering valuations.

As a result, CGS-CIMB is downgrading MIT to “hold” with a target of $2.37.

Units at MIT closed 2 cents higher at $2.27 on Thursday.