Mapletree Industrial Trust Earnings: Dividend Miss on Higher Borrowing Cost; FVE Lowered to SGD 2.41

Mapletree Industrial Trust’s ME8U fourth-quarter fiscal 2023 (ending March) net property income was in line with our estimate, growing 5.8% year on year to SGD 129 million. However, the trust’s distribution per unit of SGD 0.033 fell below our expectations due to higher borrowing cost. We lower our fair value estimate slightly to SGD 2.41 per unit from SGD 2.52, after rolling forward our estimates and factoring in the effect of valuation decay on its Singapore leasehold assets and a higher near-term cost of debt. As a result, our estimated fiscal 2024 DPU drops to SGD 0.131 from SGD 0.145. Based on the last closing price of SGD 2.36, the trust trades at a 2024 dividend yield of 5.6% and we think it is fairly valued.

The trust’s portfolio metrics remain stable, with portfolio occupancy rate declining slightly to 94.9% this quarter from 95.7% in the previous quarter due to the completion of its redevelopment project at Kallang Way. The redevelopment project’s committed occupancy continued to improve to 44% in the quarter from 39% in the previous quarter, and management has guided for the property to achieve 70% occupancy rate by the end of fiscal 2024. In our view, the management’s lease up assumption is slightly conservative, and this could be due to the trust pricing rents on the premium end, with asking rents of SGD 4.50 to SGD 4.80 per square foot per month. We believe the trust could land somewhere between SGD 4.00 to SGD 4.25 per square foot per month, which we estimate would help it to achieve a yield on cost of between 8% and 9%. This would still be above management’s initial guidance of 7%, a positive reflection of management’s execution ability, in our view.