On 27 April 2023, Mapletree Industrial Trust (“MIT”) have announced full year results for FY2023. MIT results have shown that in the last quarter of 2023, finance costs have rose sharply by almost 50% which caused the distributable income to fall. Combined with the larger number of units, DPU have decreased.
This 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.
Website: Financial Statements And Related Announcement::Full Yearly 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.
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 March 2023, 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 | -1.7% | -0.7% |
DPU for the full year of FY2023 decreased by 1.7% although revenue have increased by 12.3% as compared to FY2022 and distributable income have increased by 1.6% to SGD356 million.
The decrease was due to increase in number of units in issue by 2.4% when compared to as at 31 March 2022, 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 | 94.9% | 95.7% |
Occupancy rate as at 31 March 2023 have decreased to 94.9% as compared to 95.7% at 31 December 2022. The decrease was mainly contributed by a fall for Hi-Tech Buildings, as there are redevelopment works at Mapletree Hi-tech Park @ Kallang Way. This metric is Neutral as it is slightly below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 37.4% | 37.2% |
Gearing ratio stands at 37.4% as at 31 March 2023, an increase from 37.2% as at 31 December 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 | 4.5x | 4.8x |
The adjusted interest coverage for the trailing 12 months stands at 4.5 times as at 31 March 2023 respectively. This is Unfavorable 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 3 May 2023 has hiked the interest rates to a range between 5.00% and 5.25%, the highest level in 15 years and are likely to keep it at these levels over the next few years. While the interest rates may not be increased further, maintaining the rates at these levels over the next few years may cause MIT to take on new loans at higher interest rates.
Website: US Fed raises interest rates again, signals potential pause in tightening cycle
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 1.4%. 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 | -$600 | -0.7% |
| + 100 bps | -$1,300 | -1.4% |
| + 150 bps | -$1,900 | -2.1% |
| + 200 bps | -$2,600 | -2.8% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.7 years | 3.1 years |
Weighted average term to maturity of their debt stands at 3.7 years on 31 March 2023. 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 | 1.27 | 1.25 |
The Price to Book (“P/B”) ratio currently stands at 1.27. This is computed using the closing share price of SGD2.35 on 16 May 2023 and the net asset value per share of SGD1.85 as at 31 March 2023. 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 | 2.86% | SGD 0.067 |
| 2022 | 5.89% | SGD 0.138 |
| 2021 | 5.70% | SGD 0.134 |
| 2020 | 5.18% | SGD 0.122 |
| 2019 | 5.14% | SGD 0.121 |
| 2018 | 4.62% | SGD 0.109 |
For the first half of the calendar year 2023, MIT have declared a dividend of SGD0.067 per share. If extrapolated to a full calendar year, this will mean an expected dividend payout of SGD0.134 per share, slightly below when compared with 2022. With a closing share price of SGD2.35 as at 16 May 2023, this translates to a dividend yield of 5.70%. 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 2023Q2
It is worth noting that interest for long-term safe assets have stabilized and is on a downtrend. The June 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 2.81%. There is a chance for interest rates may not increase significantly moving forward, and the required dividend yield of investor may be lower than current.
Website: SBJUN23 GX23060E 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 March 2023 accounted for only 29.5% of MIT’s portfolio with no single tenant accounting for more than 5.9% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -1.7% | Unfavorable |
| Occupancy | 94.9% | Neutral |
| Gearing Ratio | 37.4% | Favorable |
| Interest Coverage | 4.5x | Unfavorable |
| Debt Maturity Profile | 3.7 years | Favorable |
| Price to Book Ratio | 1.27 | Unfavorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in MIT. The increase in finance costs for for the last quarter of 2023 is not unexpected. Given that the interest rates are likely to remain at these levels over the next few quarters, it is possible for further DPU impacts which may cause the share price to face some downward pressure.
This however will provide opportunities for investors to buy at the current low prices and wait for interest rates to decrease over the next few years. 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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