Mapletree Industrial Trust (MIT) is an SGX-listed REIT with a diversified portfolio of 143 properties including 86 based in Singapore and 57 in North America. As of 31 March 2022, MIT’s total assets under management was S$8.8 billion. In view of the current uncertain economic landscape, tightening monetary measures, and geopolitical uncertainties, I was curious about MIT’s performance and its management’s outlook on the year ahead. To learn more, I attended MIT’s recent annual general meeting.
Here are eight things that I’ve learned from 2022 Mapletree Industrial Trust AGM.
1. Gross revenue increased 36.4% year-on-year (y-o-y) to S$610.1 million and net property income (NPI) grew 34.5% y-o-y to S$472.0 million. According to Ler Lily, chief financial officer of MIT, the impressive performance was a result of better returns from MIT’s Singapore portfolio and its enlarged North American portfolio. MIT benefitted from having new income streams from 29 U.S. data centres acquired in July 2021 as well as full-year income contributions from 14 data centres held under Mapletree Redwood Data Centre Trust (MRDCT) and the data centre at 8011 Villa Park Drive, Richmond, Virginia, acquired in March 2021.
2. MIT’s distribution per unit (DPU) grew to 13.80 cents, representing a 10% y-o-y growth. Distributable income for FY21/22 was S$350.9 million, representing an 18.8% y-o-y increase from S$295.3 million in FY 20/21. This increase was attributed mainly due to higher NPI which partially offsets higher borrowing expenses, lower distribution declared by joint ventures and higher manager’s management fees incurred.
3. A unitholder expressed his concerns on whether MIT’s impressive DPU for FY21/22 is sustainable in the longer term. In the live Q&A session, Tham Kuo Wei, chief executive officer of MIT, mentioned that unitholders should not expect 10% y-o-y growth in DPU to be a frequent occurrence. As the REIT grows, it will be increasingly difficult to expand at the same pace. This year’s results were also higher due to the contributions from prior acquisitions made in 2021. Tham added that it will not be easy for MIT to continuously secure such deals. Even if they manage to, MIT faces pressures in terms of margins, costs and rising interest rates which will reduce the potential upside in the near term.
4. Aggregate leverage ratio fell to 38.4% in 2022 from 40.3% the previous year. MIT maintains a healthy interest coverage ratio of 5.7 times. Management is comfortable with the current leverage ratio as it is within the limit of 50% imposed by the MAS.
5. Portfolio occupancy increased from 92.6% in FY20/21 to 93.9% in FY21/22. Overall increase was attributed to improvements in the average Singapore portfolio occupancy rate which grew to 93.8% from 91.7%. The increase in occupancy rates was registered at hi-tech buildings, flatted factories, and stack-up/ramp-up buildings. Conversely, North American portfolio occupancy rate fell to 94.2% from 97.9%.
6. In light of the backdrop of several data centre tenants in the U.S. facing bankruptcies, a unitholder asked about the management’s outlook and its impact on MIT. MIT mentioned that it holds a diversified portfolio of tenants with no concentration risk given its low dependence on a single tenant. Currently, the company has a tenant base of 2,266 tenants with 3,293 leases. The top 10 tenants contribute only about 29.5% of portfolio’s monthly gross rental income as of 31 March 2022.
In terms of MIT’s outlook, the global data centre industry continues to show strong demand driven by structural trends like cloud computing and e-commerce. Management expects leased data centre supply (by net operational square feet) and demand (by net utilised square feet) to grow at a CAGR of 6% to 8% respectively between 2020 and 2026.
7. Another unitholder asked whether rising interest rates would result in MIT reducing its dividend for FY22/23. In response, MIT mentioned that in view of the rising interest rate environment, they have taken additional hedges and extended hedges for its borrowings. MIT strives to maintain an average interest rate hedge ratio of between 70% and 80%. Based on unhedged borrowings, as of 31 March 2022, the amount available for distribution and DPU would have been lowered by an estimated S$3.5 million and 0.13 cents respectively if interest rates increased by 50 basis points.
8. A unitholder asked about MIT’s plans for acquisitions outside of the United States. Currently, MIT’s AUM by geography solely concentrates on North America and Singapore at 50.7% and 49.3% respectively. As the world’s largest and most established data centre market, the U.S. will continue to be a core market for MIT. However, the company is eyeing for investment opportunities in markets like Europe and Asia Pacific which are equipped with highly developed infrastructures. MIT’s core focus remains on investing in established data centre markets.
The fifth perspective
MIT’s remarkable financial performance in terms of year-on-year growth in gross revenues and net property income is a testament to the strong economic moat that it possesses in this industry. Having said that, investors should not expect the same DPU growth to be a frequent occurrence.
In terms of valuation, MIT currently trades at a dividend yield of 5.1% (as of 1 August 2022). With a 10-year historical average of 5.97%, I would prefer a higher yield of near 6% if I were to invest in the REIT.
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