Mapletree Industrial Trust: <Alert!> Mapletree Industrial Trust: A solid start to the year
- Resilient 1QFY25 DPU of 3.43 Scts (+2.1% y/y, +1.2% q/q) a robust startÂ
- Operating metrics stable and positive reversions will drive steady returns in the coming year
- Incremental positive in the U.S. with the backfiling of vacated space by AT&T, new healthcare-based tenant signs for 30 years
- Maintain BUY, TP SGD2.60
Resilient returnsÂ
(+) Resilient 1QFY25 DPU of 3.43 Scts +2.1% y/y, +1.2% q/q), slightly ahead of estimates. Mapletree Industrial Trust (“MINT”) reported another quarter of resilient returns with 1QFY25 DPU of 3.43, representing c.28% of our full year forecast.  Capital management was effective, keeping cost of debt stable at 3.2% (+0.1% q/q), compared to our projection of 3.5%. Overall interest cost should remain on an uptrend as loans are refinanced through the course of the year. In 1QFY25, gross revenues and net property income were marginally higher at c.2.7% and 1.3% y/y at SGD175.3mn and SGD132.5mm respectively. The higher performance was driven by higher rentals achieved, contribution from Osaka DC, partly offset by the weakening divestments (Tanglin Halt cluster) and non-renewal of leases, mainly in the USA. Joint venture, Mapletree Rosewood Data Centre Trust also reported higher distribution (+45% y/y) mainly due to income withheld from tenant payment issues a year ago which has subsequently been resolved. The REIT also received c.SGD 2.6 mn in one of compensation payment in relation to a redevelopment project, which will be paid out in subsequent quarters. Â
 Our view
(+) Resilient financial metrics. The MAS leverage ratio remained stable at 39.1% (+0.4 ppt q/q), with (debt + perpetual) / asset ratio steady at 39.6. We note that these percentages remain conservative at < 40%, reflecting the managers’ conservative financial management style. Overall interest cost was 3.2% (+.1% q/q) but overall cost should rise in the medium term as hedges and debt are refinanced (priced in 3.5% for FY25). Looking ahead, management expects overall cost of debt to rise to c.3.5% in the coming year, which we have priced in. As such, adjusted interest coverage ratio (“ICR”) remains stable and comfortable at 4.3x (flat q/q) and our calculated adjusted EBITDA ICR ratio (accounting for perpetual securities distributions) is at c.3.8x. The trust is resuming dividend reinvestment plan (“DRP”) in the current quarter which will further strengthen the REIT’s balance sheet.Â
 (+) Stable operating metrics, although a slight uptick across Singapore and USA.   We saw robust operational metrics. For Singapore, reversions were high at an estimated +9.2% ( up from 6.6% in FY24) with positive rental reversions were seen in all segments in Singapore. while MINT’s data-centers in the US saw a slight improvement in occupancy to c.89.2% (vs 87.7% a quarter ago) on the back of successful back-filing of space in the U.S. Looking ahead, the manager expects to see occupancies in the U.S remaining under pressure due to termination of space from a co-location player by the end of FY25 and will be actively looking to address this risk.  In Singapore, 165 Kallang Way, was commitment rates slightly rise to c.53% (vs c.52% a quarter ago), a slow but steady increase.Â
 (-) Positive momentum in the back-filing of US data-centers. The impact of the return of space from the AT&T leases has felt in the current quarter as two data-centers (of a total of 3 data-centers) has been returned to the Manager. In the quarter, the manager has successfully re-let 402 Franklin Road, Brentwood to a healthcare tenant for a long lease of close to 30 years, with rent expected to be collected starting Jun’25. In preparation of the new lease commencement, the manager is expected to spend up to c.US$5m to improve property attribute.Â
Attractive returns, BUY, TP SGD2.60 (+20% total return). MINT’s share price has declined by 9.0%, which is more resilient than its larger cap peers. Regarded as a bellwether stock for S-REITs given its diversified exposure in SG, US and Japan, investors have always preferred to stay with MINT for its pivot to the growing datacenter subsector, which remains on a firm growth trend. Overall, we believe that valuations remain inexpensive at c.1.26x P/B, and FY24F-25F yields of c.5.9% are slightly higher than historical averages. We see investors gravitating towards MINT especially when overall economic conditions remain uncertain as its diversified portfolio has proven to be able to weather the downturns. BUY, TP SGD2.60.Â
 Key items to watch
- Leasing of space at recently completed development project in Singapore, (ii) Backfilling of returned DC space in the US, and  (iii) Interest rate outlook.
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