Mapletree Industrial Trust is a Singapore-based real estate investment trust (REIT). The principal activity of the Company and its subsidiaries is to invest in income-producing real estate used primarily for industrial purposes in Singapore and as data centers across the world beyond Singapore, as well as real estate-related assets, with the primary objective of achieving returns from rental income and long-term capital growth. Its segments include Data Centres, Hi-Tech Buildings, Business Park Buildings, Flatted Factories, Stack-up/Ramp-up Buildings and Light Industrial Buildings. It has approximately 86 properties in Singapore and 57 properties in North America. Its properties include 161, 163 & 165 Kallang Way, 18 Tai Seng, 30A Kallang Place, 1 and 1A Depot Close, 2 Christie Heights, 6 Norden Place, 1001 Windward Concourse and 1221 Coit Road, among others. Mapletree Industrial Trust Management Ltd. is the Company's manager.
Investment Overview
Diversified “new economy” landlord with a data-center spin. Mapletree Industrial Trust ("MINT") is one of Singapore's largest industrial landlord with a portfolio of well located flatted factories, high-specification properties catering to wide ranging industries from IT, media, tech, bio-medical and varied industrial sectors. In order to diversify its earnings base and income resilience, the REIT made a strategic pivot to invest in datacenters (CSGD4.4bn worth) which now contribute close to 50% of its assets. Collectively, at an AUM of close to SGD9.0bn, is one of the largest new-economy REIT in Singapore.
Redevelopment upside drives NAV upside. Its portfolio of flatted factories are well located across Singapore can be seen as an attractive “landbank” for the REIT. MINT has over the years embark on a redevelopment journey on selected assets, extracting untapped GFA and driving shareholder value through NAV and DPU uplifts as these assets are converted to higher quality specifications properties, This redevelopment strategy can also be seen on selected assets within USA where the REIT may look to reposition after the leases expire over time.
Overcoming near term hurdle. The expiry of the AT&T leases (2nd largest tenant contributing 5% of revenues over 2HFY24 and end FY25) is of focus, with the manager actively looking to re-let part / most of its space. We understand that the manager has been able to attract new tenants which will compensate for the risk of income loss. We have priced in 50% occupancy downtime in our estimates.
Buy call, TP SGD2.60 based on DCF. We continue to like MINT and see value despite trading at a P/B of 1.2x. This is justified from the regular redevelopments that will boost its asset values, closing that valuation gap. We see fair values for the stock at more than 20% higher with target yields in the range of c.5%.
DCF Valuation. Target price of SGD2.60 based on DCF. This is based on a WACC of 6.4% (risk free of 3.5%). We have not assumed acquisitions in our estimates. Our TP assumes a target yield of close to 5.0%.
Risks
Rising interest rates. An increase in refinancing rates will negatively impact distributions. However, MINT has minimised the impact as c.73% of its interest cost has been fixed.
Asset devaluations. The annual revaluation exercise coming in Apr'23 will be a key datapoint to track. While markets are expecting an expansion in cap rates due to higher interest rates in the US, the long WALE coupled with conservative valuations supports its NAV.
Topic
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