Mapletree Industrial Trust’s Q3 Fiscal 2023 in Line; Rising Interest Rates Erode DPU

Mapletree Industrial Trust’s, or MIT’s, third-quarter fiscal 2023 (ending March) results were in line with our expectations. Supported by robust tenant retention rates of 92.2% and improving occupancy rates for its flatted factories and stack-up/ramp-up buildings, MIT’s Singapore portfolio occupancy rate continued to hit a fresh high of 96.9%. This is impressive as the completion of the development of 165 Kallang Way in November 2022 has dragged occupancy rates of its hi-tech buildings down to 94.8% this quarter from 98.6% in the previous quarter. Although MIT has successfully maintained a good performance for its Singapore assets in this fiscal year, we reiterate our view that it may be hard to keep this up in the medium to long term given the Singapore government’s track record of providing ample supply of industrial land to keep cost of doing business low. This would weigh on rents and put pressure on the trust’s occupancy rates over time. That said, we expect the trust to continue actively managing its properties to lease up vacant units and achieve rental growth for its unitholders. We maintain our SGD 2.52 fair value estimate and think the trust is fairly valued presently.