Broker's take: DBS says Mapletree Industrial Trust becoming 'alternative data centre play'

DBS Group Research on Tuesday said Mapletree Industrial Trust (MIT) is fast becoming an alternative data centre play and has ample capacity for strategic acquisitions in the US.

It maintained its "buy" call on the real estate investment trust (Reit) with a target price of S$2.70.

MIT units were up S$0.03 or 1.2 per cent to S$2.47 as at 2.15pm on Tuesday.

It noted MIT's manager has proactively offered its tenants a rental relief package, ranging from two weeks to one-and-a-half months of rent - in line with market practice.

Additionally, the manager has turned cautious in the face of an economic recession.

That said, MIT's asset diversity and contributions from its recently acquired portfolio of 13 US data centres should push distributions higher, DBS added.

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Meanwhile, MIT could "surprise on the upside" in terms of net asset value (NAV) and acquisitions in the medium term, DBS opined.

The development of its landbank of older factories like the Kolam Ayer cluster should help to increase the gross floor area of its portfolio and drive medium-term growth in distributions and NAV.

"These should continue to keep valuations at a premium," DBS analysts said.

At the same time, MIT's low gearing allows for opportunistic acquisitions and developments. Gearing is projected to rise to about 33 per cent in FY2021/2022, which implies the manager may look to restart its dividend reinvestment scheme to pare it down over time, DBS said.

Better-than-expected rental reversions and/or acquisitions would boost MIT's earnings and share price while potential rising interest rates would be a key risk for the Reit.

However, MIT has minimised the impact of increased interest rates as about 73 per cent of its interest cost is fixed, DBS said.