Mapletree Industrial Trust eyes international buys to boost overseas AUM to 30%

It could enter third party deals in Europe and Asia to drive DPU growth.

The steady growth of Mapletree Industrial Trust’s (MIT) distribution per unit (DPU) is increasingly reliant on the firm’s overseas high-tech push, a report by Maybank Kim Eng (Maybank KE) revealed.

MIT group’s property portfolio comprises 87 industrial properties in Singapore and 14 data centres in the US. It’s US portfolio occupancy remained steady at 97.4% in Q1, and Mapletree Industrial Trust Management is said to be sanguine on further data centre investments in the US backed by rising demand.

Also read: Singapore's data centre capacity to hit 380MW by 2022

“Leased supply and demand are expected to rise at 4.6% and 7.6% compound annual growth rate (CAGR) between 2017-2023,” Maybank KE’s analyst Chua Su Tye said. “We expect incremental data centre investments, possible third party deals in Europe and Asia, to provide DPU growth optionality and thus implying upside risks. Management sees ample opportunities, and is ready to raise its overseas exposure from 20% to 30% of assets under management (AUM).”

This sentiment was echoed by Jefferies Singapore’s equity analyst Krishna Guha, who noted that negative reversions for the firm’s domestic properties are likely to persist for the next couple of quarters. MIT’s rental reversions were weak for renewal leases in Q1 FY 2020, with all segments recording negative rental reversions. “Management prefers acquisition of overseas data centre portfolio on a shell+core basis. Overseas assets can grow from the current c. 10% to c.30% of portfolio,” he noted.

MIT’s net property income (NPI) jumped 12.2% YoY to $77.92m in Q1, whilst revenue rose 8.8% YoY to $91.49m, thanks to new revenue contributions from 18 Tai Seng, 30A Kallang Place and Mapletree Sunview 1. As at 30 June, MIT’s total AUM stood at $4.8b.

Also read: Mapletree Industrial Trust's NPI grew 12.2% to $77.92m in Q1

Maybank KE also noted that MIT has received its temporary occupation permit (TOP) for 7 Tai Seng, following upgrading works into a data centre for Equinix on a 25-year lease term with annual rental escalations, which Chua estimates could contribute 5.2% to its FY 2021 NPI.

“Management is optimistic on leasing activity for the 12.3% of its leases by gross rental income due for renewal in FY 2020, with rents likely to bottom out in the coming one to two quarters against easing supply,” Chua said.

Meanwhile, a separate report by OCBC Investment Research (OIR) also noted that MIT’s positive long-term growth prospects are sprouting from the firm’s scale-up projects. The firm announced a redevelopment project for its Kolam Ayer 2 cluster, which would result in two flatted factories and an amenity centre being redeveloped into a new hi-tech building at an estimated project cost of $263m.