We are now in the thick of the earnings season and many REITs have reported their latest business updates and earnings.
Mapletree Industrial Trust (SGX: ME8U), or MIT, recently announced its earnings for the second quarter of its fiscal 2024 (2Q FY2024) ending 30 September 2023.
Unlike its peer Mapletree Logistics Trust (SGX: M44U), MIT did not manage to increase its year-on-year distribution per unit (DPU).
However, the REIT did report several encouraging metrics that point to stronger numbers in the quarters ahead.
Here are five highlights from the industrial REIT’s latest earnings report.
1. A resilient set of financials
For 2Q FY2024, MIT’s gross revenue dipped by 0.8% year on year to S$174.1 million.
With property expenses inching up 0.8% year on year for the quarter, net property income ended up 1.4% lower than the prior year at S$128.6 million.
Distributable income, however, rose 3.5% year on year to S$94.1 million.
The REIT’s units in issue increased by 4.8% year on year to 2.8 billion largely because of the equity fundraising in 1Q FY2024 to fund MIT’s Osaka data centre acquisition along with the distribution reinvestment plan that lasted from 3Q FY2022 to 3Q FY2023.
DPU, therefore, fell slightly by 1.2% year on year to S$0.0332.
During the quarter, MIT saw its borrowing costs rise by 10.6% year on year to S$26.3 million.
This quantum is less than the previous quarter’s sharp 32.5% year-on-year jump in finance costs and points to this expense moderating in future quarters.
2. Robust operating metrics
Despite the lower DPU, MIT boasts robust operating metrics across its portfolio of 142 properties.
The occupancy rate stood high at 93.2% as of 30 September 2023, dipping just slightly from 93.3% in the previous quarter.
The REIT’s weighted average lease expiry (WALE) by gross rental income (GRI) stood at 4.2 years, helped by the long WALE of 19.2 years for its recently acquired Osaka data centre.
MIT’s portfolio also enjoyed positive rental reversions of 8.8% for 2Q FY2024, with rental reversions ranging from 4.7% to 9.9%.
In addition, the Singapore portfolio saw a high tenant retention rate of 83.2% for the quarter, with close to 65% of tenants having leased properties for more than four years.
3. A reduction in the cost of debt
Moving on to MIT’s debt metrics, the REIT sported an aggregate leverage ratio of 37.9% for 2Q FY2024.
Its weighted average all-in funding cost fell from 3.5% in 1Q FY2024 to 3.2% in 2Q FY2024.
Around 12.6% of its total debt comprises Japanese Yen loans taken to finance the acquisition of the Osaka data centre, which could explain why the REIT’s cost of debt has fallen.
MIT also provided a sensitivity analysis to show how rising interest rates could negatively impact its DPU.
A one-percentage-point increase in base rates will cause a 1.5% decline in DPU.
MIT only has 3.2% of its loans coming due in FY2024 and has 79.2% of its debt pegged to fixed rates, thereby mitigating the risk of a sharp increase in its borrowing costs.
4. A diversified tenant base
MIT has a diversified tenant base with over 2,000 tenants.
Its largest tenant contributes just 5.9% to GRI and the REIT’s top 10 tenants make up 30.5% of total GRI.
The top 10 tenants also boast strong names such as HP Inc (NYSE: HPQ), AT&T (NYSE: T), an unnamed established data centre operator, and Bank of America (NYSE: BAC).
To top it off, MIT’s tenants are also well-diversified across multiple trade sectors, with no single sector accounting for more than 17% of the portfolio’s GRI.
5. Continue with portfolio rebalancing
The CEO of the REIT manager, Tham Kuo Wei, commented that the REIT will remain focused on prudent capital management and proactive tenant retention.
He also remarked that portfolio rebalancing will continue through a mix of accretive investments and selective divestments of non-core assets.
Investors should note that the acquisition of the Osaka data centre was completed on 28 September 2023, such that 2Q FY2024’s numbers will not include this purchase.
The rental income from this newly-acquired asset should show up from 3Q FY2024 onwards.
Over at the newly-redeveloped Mapletree Hi-Tech Park @ Kallang, the committed occupancy has increased from 44.1% in the previous quarter to 48.2%.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.
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