Mapletree Industrial Trust Earnings: Resilient Results but Kallang Way Leasing Progress Disappoints

Mapletree Industrial Trust ME8U posted a commendable set of operating results for second-quarter fiscal 2024 (ending March). The trust achieved a positive 8.8% rental reversions for its Singapore properties despite a slight decline in occupancy rate to 93.4% this quarter from 93.7% in the previous quarter. As for its North American portfolio, average rental rate of USD 2.42 per square feet per month was flattish quarter over quarter, but occupancy rate improved to 92.7% this quarter from 92.4% in the previous quarter. The performance was largely in line with our expectations, and we retained our SGD 2.41 per unit fair value estimate. Based on its last closing price of SGD 2.16, we think the trust is slightly undervalued and trades at an attractive fiscal 2024 dividend yield of 6.1%. We continue to like the trust for its strong sponsor and portfolio of data centers that benefits from the strong secular growth trends, such as cloud computing, artificial intelligence, 5G, and other technological advancements.

Leasing progress for its redevelopment project, Mapletree Hi-Tech Park at Kallang Way, was slightly slower than our expectations. We previously thought that management’s guidance for the property to achieve 70% occupancy rate by the end of fiscal 2024 was on the conservative end, but it now appears difficult to achieve given that the property’s occupancy is at 48.2% as of September 2023, improving only by 4.1 percentage points from the previous quarter. Management shared that the uncertain economic outlook and potential high capital expenditure required to invest in a new and large facility is holding companies back from committing to a new lease. That said, the trust expects to see more demand from smaller occupiers to drive occupancy improvement in the near term.