Elevator Pitch
Mapletree Industrial Trust (OTCPK:MAPIF) [ME8U:SP] is awarded a Hold investment rating. Previously, I wrote about Mapletree Industrial Trust’s funding costs and the financial health of specific tenants for the Singapore REIT in my January 2, 2024 write-up.
With this latest article, my focus is on Mapletree Industrial Trust’s key positives and negatives in view of recent developments. The favorable factors for MAPIF include an upward revision in its asset monetization target and the defensive characteristics of the REIT’s portfolio. On the flip side, the Singapore properties’ slower pace of positive rental revisions and the US data centers’ higher vacancy rate are the major negatives for Mapletree Industrial Trust.
My analysis indicates that Mapletree Industrial Trust has a balanced risk-reward and is deserving of a Hold rating.
Readers can deal in the REIT’s shares on the Over-The-Counter market and the Singapore equity market. The trading liquidity for Mapletree Industrial Trust’s shares traded on the OTC market is low. However, the average daily trading value for the REIT’s shares listed on the Singapore Exchange was reasonably high at $10 million for the past 10 trading days as per S&P Capital IQ data. Interactive Brokers is among a handful of US brokerages offering trading services for Singapore-listed stocks.
Divestitures Target Was Revised Upwards
Mapletree Industrial Trust revised its target for divestitures upwards from S$100-200 million to S$200-500 million at its FY 2024 (YE March 31) results briefing in late April.
MAPIF explained at its most recent analyst call last month that “more divestments” are a “way for us to get (acquisition) dry powder)” and be “ahead of the curve for rebalancing the portfolio.” In other words, a potential increase in proceeds generated by asset sales might help to finance new acquisitions that enhance the quality of Mapletree Industrial Trust’s property portfolio.
The REIT concluded the sale of a property at “115A & 115B Commonwealth Drive, Singapore” known as the “Tanglin Halt Cluster” on March 27, 2024 as per an announcement published on the same day. Mapletree Industrial Trust disclosed at the FY 2024 analyst briefing in April that the $13 million investment gain associated with the “Tanglin Halt Cluster” transaction will be paid out to shareholders in the form of dividends for FY 2025 (April 1, 2024 to March 31, 2025). This means that dividend distributions are another choice for allocation of divestment proceeds, apart from acquisitions.
A more ambitious monetization goal for the REIT could possibly translate into an improvement in asset mix and a higher level of distributions for the future.
Tenant Diversification And Long Portfolio Lease Expiry Provide Downside Protection
Mapletree Industrial Trust’s portfolio has certain characteristics that make the REIT more resilient and defensive in uncertain times.
According to the REIT’s latest investor presentation slides issued in April 2024, MAPIF’s tenant mix is pretty diversified and its portfolio lease expiry is reasonably long. In specific terms, the number of tenants for Mapletree Industrial Trust’s properties exceeds 2,000, with no single tenant contributing more than 6% of the REIT’s rental income. Also, the average lease expiry period for MAPIF’s assets is a healthy 4.4 years.
As such, Mapletree Industrial Trust will likely outperform less diversified REITs with unfavorable lease expiry profiles in the event of an economic downturn.
US Data Centers Suffer From Higher Vacancy And Lower Valuations
MAPIF’s data center assets in the US are a weak spot for the REIT.
The vacancy rate of Mapletree Industrial Trust’s data center segment rose from 9.0% as of December 31, 2023 to 12.3% at the end of March this year. MAPIF noted at its recent analyst call that it is “not too sure” that it can get “a replacement tenant” for its data center in San Diego that expires at the end of calendar year 2024, even though it is “reaching out to the market.” This suggests that there is a risk that the REIT’s vacancy rate for its data centers continues to rise.
On the other hand, the “higher-for-longer” interest rate environment has hurt the valuations of MAPIF’s US data center assets. The valuation of Mapletree Industrial Trust’s data centers in the US decreased by -5.6% (source: investor presentation slides) between end-FY 2023 and end-FY 2024 due to higher capitalization rate assumptions.
In a nutshell, the REIT’s US data center assets have been hit by a decrease in both occupancy and valuations.
A Slower Pace Of Positive Rent Reversions For Singapore Properties
The expected increase in Mapletree Industrial Trust’s rental rates for its Singapore assets in the future might be less substantial.
MAPIF registered a +6.6% growth in rental rates for leases renewed for its Singapore properties in the most recent Q4 FY 2024. But this represented a slower rate of growth as compared to the REIT’s Q3 FY 2024 rent reversion of +7.2%.
Mapletree Industrial Trust highlighted at its FY 2024 earnings call last month that the rent reversions for its Singapore assets are likely to “trend towards a 4%, 5% level.” At its recent fiscal year analyst briefing, MAPIF acknowledged that it has hit the “point of diminishing returns” with “10 quarters of consecutive positive rent revisions.”
In other words, the pace of rent reversions for MAPIF’s Singapore assets will most probably be slower in the quarters ahead.
Concluding Thoughts
There are both risks and rewards pertaining to a potential investment in Mapletree Industrial Trust, and this suggests that a Hold rating for the REIT is fair. The key risks for MAPIF relate to a more modest increase in rental rates for its Singapore properties’ expiring leases and a further decrease in the occupancy rate of its US data center assets. On the other hand, I view the REIT’s diversified tenant mix and ambitious asset sale target as positives.
In terms of valuations, Mapletree Industrial Trust’s key metrics are close to their historical averages, which provides another reason to have a Neutral view of the name. The REIT currently trades at 1.26 times trailing P/B and offers a 6.22% dividend yield. As a comparison, Mapletree Industrial’s all time historical mean dividend yield and P/B were 6.19% and 1.35 times, respectively, as per S&P Capital IQ data.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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