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Summary in seconds
Mapletree Industrial Trust (OTCPK: MAPIF) (ME8U:SP) earns an investment rating of Hold. Previously, I wrote in my article about the financing costs of Mapletree Industrial Trust and the financial health of specific tenants of the Singapore REIT. Article from January 2, 2024.
With this latest article, I focus on the main positives and negatives of Mapletree Industrial Trust in light of recent developments. Favorable factors for MAPIF include an upward revision to its asset monetization target and the defensive characteristics of the REIT’s portfolio. On the other hand, the slower pace of positive rent reviews for Singapore properties and the higher vacancy rate for US data centers are the main negatives for Mapletree Industrial Trust.
My analysis indicates that Mapletree Industrial Trust has a balanced risk/reward ratio and deserves a Hold rating.
Readers Can Trade REIT Stock on the over-the-counter market and on the Singapore stock market. The trading liquidity of Mapletree Industrial Trust shares traded in the over-the-counter market is low. However, the average daily value of the REIT’s shares listed on the Singapore Exchange was reasonably high at $10 million over the past 10 trading days, according to S&P Capital IQ data. Interactive Brokers is one of a handful of U.S. brokerages offering trading services in Singapore-listed stocks.
The disposal target has been revised upwards
Mapletree Industrial Trust has revised its divestment target upwards from S$100 million to S$200 million to S$200 million to S$500 million in its 2024 financial year (March 31). presentation of the results end of April.
MAPIF explained during its latest conference call with analysts last month that “more divestments” are a “way for us to get (dry powder acquisitions)” and be “ahead of the curve portfolio rebalancing. In other words, a potential increase in proceeds generated from asset sales could help finance new acquisitions improving the quality of Mapletree Industrial Trust’s real estate portfolio.
The REIT completed the sale of a property located at “115A & 115B Commonwealth Drive, Singapore” known as “Tanglin Halt Cluster” on March 27, 2024, pursuant to an announcement published the same day. Mapletree Industrial Trust revealed at the fiscal 2024 analyst briefing in April that the $13 million investment gain associated with the “Tanglin Halt Cluster” transaction will be paid to shareholders in the form of dividends for fiscal year 2025 (April 1, 2024 to March 31, 2024). 2025). This means that dividend distributions constitute another choice for the allocation of proceeds from divestments, apart from acquisitions.
A more ambitious monetization target for the REIT could potentially result in an improved asset mix and a higher level of distributions going forward.
Tenant diversification and long-term portfolio lease expirations provide downside protection
Mapletree Industrial Trust’s portfolio has certain characteristics that make the REIT more resilient and defensive in times of uncertainty.
According to the latest FPI report investor presentation slides issued in April 2024, MAPIF’s tenant mix is quite diversified and the duration of the leases in its portfolio is reasonably long. Specifically, the number of tenants at Mapletree Industrial Trust’s properties exceeds 2,000, with no tenant contributing more than 6% of the REIT’s rental income. Furthermore, the average lease expiry period for MAPIF assets is 4.4 years.
As such, Mapletree Industrial Trust will likely outperform less diversified REITs with unfavorable lease expiration profiles in an economic downturn.
US data centers suffer from higher vacancy and lower valuations
MAPIF’s U.S. data center assets are a weak point for the REIT.
Mapletree Industrial Trust’s data center segment vacancy rate increased from 9.0% as of December 31, 2023 to 12.3% as of the end of March this year. MAPIF said during its recent conference call with analysts that it was “not too sure” whether it could find “a replacement tenant” for its San Diego data center that expires at the end of the year. calendar 2024, even as it “reaches out to the market.” This suggests that there is a risk that the REIT’s data center vacancy rate will continue to rise.
On the other hand, the “higher for longer” interest rate environment hurt valuations of MAPIF’s U.S. data center assets. The valuation of Mapletree Industrial Trust’s US data centers decreased by -5.6% (source: investor presentation slides) between the end of 2023 and the end of 2024 due to higher capitalization rate assumptions.
In a nutshell, the REIT’s US data center assets have been hit by declining occupancy and valuations.
A slower pace of positive rent reversions for properties in Singapore
The expected increase in Mapletree Industrial Trust’s rental rates for its Singapore assets in the future may be less substantial.
MAPIF recorded +6.6% growth in rental rates for renewed leases for its Singapore properties in the final quarter of FY2024. But this represents a slower growth rate compared to reversion rents for the REIT’s third quarter of fiscal 2024 of +7.2%.
Mapletree Industrial Trust highlighted during its FY2024 earnings conference call last month that rental reversions for its Singapore assets would “likely trend towards a level of 4-5%”. At its recent financial year analyst meeting, MAPIF acknowledged having reached the “point of diminishing returns” with “10 consecutive quarters of positive rent reviews.”
In other words, the pace of rental reversions on MAPIF assets in Singapore will most likely be slower over the coming quarters.
Final Thoughts
There are both risks and rewards to a potential investment in Mapletree Industrial Trust, suggesting that a Hold rating for the REIT is fair. The main risks for MAPIF relate to a more modest increase in rental rates for expiring leases at its Singapore properties and a further decline in occupancy at its U.S. data center assets. On the other hand, I view the REIT’s diverse tenant mix and ambitious asset sale target as positive.
In terms of valuations, Mapletree Industrial Trust’s key metrics are close to their historical averages, which is another reason to have a neutral view on the name. The REIT currently trades at 1.26 times current P/B and offers a dividend yield of 6.22%. For comparison, Mapletree Industrial’s historical average dividend yield and P/B were 6.19% and 1.35 times, respectively, according to S&P Capital IQ data.
Editor’s Note: This article discusses one or more securities that are not traded on a major U.S. exchange. Please be aware of the risks associated with these actions.
