On 25 October 2023, Mapletree Industrial Trust (“MIT”) have announced half year results for FY2024. MIT together with the rest of the equities in the market have seen their share price rallied over the last few days, with the Federal Reserve announcing potential interest rate cuts in 2024. This is an expected market reaction. Not only will DPU improve with lowered financing costs, but safe assets will also likely yield lower, making the yields of equities look attractive. Naturally then investors will be more willing to pay a higher premium for these equities as compared to the previous month.
Investors will still need to assess if the rally can be sustained for the long term. If not, there may still be opportunities over the next few months.
Website: Financial Statements And Related Announcement::Second Quarter And/Or Half 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 properties in Singapore and North America (including data centres held through the joint venture with MIPL).
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 | -1.2% | -2.9% |
DPU for the first half of FY2024 decreased by 1.2% when compared to the same period of the prior year. It can be seen that this was due to a fall in revenue and increase in property operating expenses and borrowing costs. The overall decrease in net property income arose from the weakening of the USD and loss of income from non renewal of leases which were offset by new leases across the Group’s portfolio. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 93.2% | 93.3% |
Occupancy rate as at 30 September 2023 have decreased slightly to 93.2%. This metric is Unfavorable as it is slightly below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 37.9% | 38.2% |
Gearing ratio decreased to 37.9% as at 30 September 2023 from 37.4% in the previous quarter, due to a net repayment of bank loans this quarter. This to me is Favorable, as it is a distance away from the MAS limit of 50%.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 4.3x | 4.4x |
The adjusted interest coverage for the trailing 12 months stands at 4.3 times as at 30 September 2023. This is Unfavorable in my opinion as the coverage ratio is slightly below my preferred coverage of 5.0 times. However there may be indication that this metrics may improve in 2024.
The Federal Reserve on 13 December 2023 held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond. The interest rates are therefore maintained at a range between 5.25% and 5.50%, which was increased on 26 July 2023, the highest level in 22 years.
Website: Fed holds rates steady, indicates three cuts coming in 2024
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 | -0.6% |
| + 100 bps | -$1,300 | -1.5% |
| + 150 bps | -$2,000 | -2.1% |
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.3 years | 3.7 years |
Weighted average term to maturity of their debt stands at 3.3 years on 30 September 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 | 1.31 | 1.21 |
The Price to Book (“P/B”) ratio currently stands at 1.31. This is computed using the closing share price of SGD2.46 on 15 December 2023 and the net asset value per share of SGD1.88 as at 30 September 2023. The share price have rallied since my previous article, notably due to the news of potential rate cuts in 2024. The P/B ratio is on a higher side compared to other REITs. The metric is Unfavorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.46% | SGD 0.134 |
| 2022 | 5.62% | SGD 0.138 |
| 2021 | 5.45% | SGD 0.134 |
| 2020 | 4.95% | SGD 0.122 |
| 2019 | 4.91% | SGD 0.121 |
| 2018 | 3.64% | SGD 0.109 |
The total dividend payout in the calendar year 2023 amounted to SGD0.134 per share which is in line with my expectations from the previous article. With the recent increase in share price to SGD2.46 as at 15 December 2023, this translates to a dividend yield of 5.46%. For my benchmark, a general reasonable range would be around an average of 6.0% to 7.0%. The dividend yield is thus Unfavorable.
Website: Reasonable Dividend Yield 2023Q4
If using dividend yield of 6.0% as a benchmark, based on the dividend of SGD0.134 there is potential for MIT to see its share price drop by another 9.2% to SGD2.23. Investors will thus need to be mentally prepared that the share price might further fall.
| Yield | Share Price | Downside |
|---|---|---|
| Current (5.46%) | 2.46 | – |
| 6.00% | 2.23 | -9.2% |
| 7.00% | 1.91 | -22.2% |
| 8.00% | 1.68 | -31.9% |
| 9.00% | 1.49 | -39.5% |
This is important to note as interest rate for long-term safe assets is on a downtrend towards the end of 2023. The latest upcoming January 2024 Singapore Savings Bond is set to be issued with a 10-year average interest rate of 3.07%. The Federal Reserve in December 2023 has also announced potential rate cuts in 2024. There is a chance for interest rates to continue to decrease moving forward, and the required dividend yield of investor may be lower than current.
Website: SBJAN24 GX24010F 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 30 September 2023 accounted for only 30.5% 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 | -1.2% | Unfavorable |
| Occupancy | 93.2% | Unfavorable |
| Gearing Ratio | 37.9% | Favorable |
| Interest Coverage | 4.3x | Unfavorable |
| Debt Maturity Profile | 3.3 years | Favorable |
| Price to Book Ratio | 1.31 | Unfavorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in MIT. They have managed their financing well this quarter. With interest rates likely to decrease in 2024, their fundamentals are likely to improve further and provide more share price appreciation in the future. 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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Website: Mapletree Industrial Trust (SGX: ME8U): 2024 First Quarter Result
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