On 26 January 2023, Mapletree Industrial Trust (“MIT”) have announced third quarter results for FY2023. MIT results have shown that their business fundamentals continue to remain stable, providing investors with an ease of mind. I have compiled the key aspects of the REIT and everything seem to be in good order.
Interest coverage have decreased as well but it is not surprising given the current interest rate climate and it is consistent with other REITs across the board. MIT seems to have the sufficient financial resources to handle the increases for the next few years until interest rate starts to taper off.
Worth noting that their DPU have dropped this quarter as well. Though it was not due to a poorer financial performance but from dilution when issuing new units for settlement of manager’s management fees and also the distribution reinvestment plan (“DRP”). This quarter will be the last DRP for the near future, so we will unlikely see any major dilution over the next few quarters. For those who wish to subscribe to the DRP, hope you have managed to mail out your letters in time.
Website: Financial Statements And Related Announcement::Third Quarter Results
Photo source: https://fifthperson.com/2021-mapletree-industrial-trust-agm/
Background
MIT is a real estate investment trust listed on the Main Board of Singapore Exchange. The principal activity of MIT and its subsidiaries (the “Group”) is to invest in income-producing real estate used primarily for industrial purposes in Singapore and as data centres worldwide beyond Singapore, as well as real estate-related assets, with the primary objective of achieving sustainable returns from rental income and long-term capital growth.
MIT’s property portfolio includes Data Centres (Singapore), Data Centres (North America), Hi-Tech Buildings, Business Park Buildings, Flatted Factories, Stack-up/Ramp-up Buildings and Light Industrial Buildings.
On 21 April 2022, Mapletree Singapore Industrial Trust (“MSIT”), a wholly-owned subsidiary of MIT, completed the divestment of investment property at 19 Changi South Street 1, Singapore at a sale price of SGD13.0 million.
On 9 June 2022, MIT through its wholly-owned subsidiary, completed the divestment of 19675 West Ten Mile Road, Southfield, Michigan located in United States of America at a sale price of USD10.0 million.
Following completion of the above mentioned divestments, MIT’s property portfolio comprised 85 properties in Singapore and 56 properties in North America (including 13 data centres held through the joint venture with MIPL).
As at 31 December 2022, MIT’s total assets under management was SGD8.8 billion.
MIT’s distribution policy is to distribute at least 90.0% of its taxable income, comprising substantially rental income from the letting of its properties and related property services income after deduction of allowable expenses, as well as interest income from the periodic placement of cash surpluses in bank deposits.
MIT is managed by Mapletree Industrial Trust Management Ltd. and sponsored by Mapletree Investments Pte Ltd.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | -0.7% | -3.2% |
DPU for the first 9 months of FY2023 decreased by 0.7% although revenue have increased by 15.2% as compared to the first 9 months of FY2022 and distributable income have increased by 3.4% to SGD269 million from SGD260 million in the previous 9 months.
The decrease was due to increase in number of units in issue by 2.40% when compared to as at 31 December 2021, a result from settlement of manager’s management fees and also the distribution reinvestment plan. This metric is Unfavorable as MIT have diluted the existing shareholders resulting in a fall in DPU.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 95.7% | 95.6% |
Occupancy rate as at 31 December 2022 remains relatively unchanged with a total of 95.7% as compared to 95.6% at 30 September 2022. This metric is Favorable as it is above my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 37.2% | 37.8% |
Gearing ratio stands at 37.2% as at 31 December 2022, a drop from 37.8% as at 30 September 2022 . This to me is Favorable, as it is a distance away from the MAS limit of 50% and also provides adequate headroom for MIT to leverage on debt should there be an accretive acquisition in the short term.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 4.8x | 5.2x |
The adjusted interest coverage for the trailing 12 months stands at 4.8 times as at 31 December 2022 respectively. This is Neutral in my opinion as the coverage ratio is slightly below my preferred coverage of 5.0 times. It is likely that the cost of debt will continue to increase as MIT refinance their debts in the current interest rate climate. The Federal Reserve on 1 February 2023, the Federal Reserve has hiked interest rates to a range between 4.5% and 4.75%, and gave little indication it is nearing the end of this hiking cycle.
Website: Fed raises rates a quarter point, expects ‘ongoing’ increases
MIT have provided the interest rate sensitivity analysis as below. Should the interest rate increase by another 1.0%, using distribution per quarter as a base, distribution is expected to decrease by 1.5%. Together with other cost pressures, DPU may be negatively affected moving forward and investors should keep a keen eye out for the interest coverage.
| Change in Interest Rates | Impact on amount available for distribution per quarter (SGD’000) | Impact on DPU (%) |
|---|---|---|
| + 50 bps | -$700 | -0.7% |
| + 100 bps | -$1,300 | -1.5% |
| + 150 bps | -$2,000 | -2.2% |
| + 200 bps | -$2,700 | -2.9% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.1 years | 3.5 years |
Weighted average term to maturity of their debt stands at 3.1 years on 31 December 2022 as compared to 3.5 years at 30 September 2022. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.25 | 1.12 |
The Price to Book (“P/B”) ratio currently stands at 1.25. This is computed using the closing share price of SGD2.38 on 24 February 2023 and the net asset value per share of SGD1.90 as at 31 December 2022. The P/B ratio is still on a higher side compared to other REITs although it has fallen significantly over the last few months. The metric is Unfavorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 1.42% | SGD 0.034 |
| 2022 | 5.81% | SGD 0.138 |
| 2021 | 5.63% | SGD 0.134 |
| 2020 | 5.12% | SGD 0.122 |
| 2019 | 5.07% | SGD 0.121 |
| 2018 | 4.56% | SGD 0.109 |
For the first quarter of the calendar year 2023, MIT have declared a dividend of SGD0.034 per share. If extrapolated to a full calendar year (ie 4 payouts), this will mean an expected dividend payout of SGD0.136 per share, in line with 2022. With a closing share price of SGD2.38 as at 24 February 2023, this translates to a dividend yield of 5.71%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5%. The dividend yield is thus Favorable.
Website: Reasonable Dividend Yield 2023Q1
Furthermore, it is worth noting that interest for long-term safe assets are on a downtrend. The March 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 2.90%, which is lower than the previous few months. There is a chance with the continued decrease interest rates, the required dividend yield of investor required may not be as high as before. The current yield of MIT may be considered stable from short-term shocks.
Website: SBMAR23 GX23030A Bond Details
Other metrics
Tenant profile
MIT has an enlarged portfolio covering multiple trade sectors, with a well diversified tenant profile of over 2,000 tenants and the top 10 customers as at 31 December 2022 accounted for only 29.8% of MIT’s portfolio with no single tenant accounting for more than 6.0% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -0.7% | Unfavorable |
| Occupancy | 95.7% | Favorable |
| Gearing Ratio | 37.2% | Favorable |
| Interest Coverage | 4.8x | Neutral |
| Debt Maturity Profile | 3.1 years | Favorable |
| Price to Book Ratio | 1.25 | Unfavorable |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in MIT. With long-term interest rates continue to be on a downtrend, it might provide a stable outlook for all well-managed REITs.
There are still some market uncertainty and combined with the fact that it is already post dividend ex-date, the share price may face some downward pressure and opportunities for new investors to take a position. However, it is possible for the share price to recover should interest rates continue to decrease over the next few months. Given MIT stable track record, it should provide some ease to investors that the REIT will be able to ride out the uncertainties ahead.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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