Analysts cut Mapletree Industrial Trust targets amid ‘murky’ DPU outlook; CGSI downgrades to ‘hold’ 

[SINGAPORE] Analysts from CGS International (CGSI) and DBS Group Research have lowered their target prices for Mapletree Industrial Trust (MIT) amid rising debt costs which might delay its distribution per unit (DPU) recovery.

CGSI cut its target price to S$1.89 from S$2.22, and downgraded the trust to “hold” from “add”. DBS also lowered its target price to S$1.70 from its initial S$1.95, and maintained its “hold” call.

The cuts in target price comes after MIT’s results on Tuesday (Oct 27), when it posted a 6.6 per cent dip in DPU for the second quarter ended Sep 30.

Both research houses noted that the drop in DPU was in line with their forecasts, but DPU has yet to bottom out.

One headwind identified by both houses was the vacancies in North America.

The real estate investment trust (Reit) manager’s portfolio occupancy dipped one percentage point quarter on quarter to 89.7 per cent, dragged by its North America portfolio which dipped 3.4 percentage points quarter on quarter.

CGSI analysts Tan Jie Hui and Raymond Yap attributed the dip in the North America portfolio to its San Diego lease expiry in May.

Derek Tan, analyst at DBS Group Research, said: “North American vacancies remain an overhang, although successful backfilling provides improved earnings visibility, albeit in the medium term.”

MIT has signed new leases at its Alpharetta and San Jose data centres, but DBS’ Tan expects the properties to start contributing income from around March 2027.

“While encouraging, we expect minimal near-term DPU uplift from these leases, given the rent-free periods and lower signing rents,” added the CGSI analysts.

However, both houses noted that Singapore remains a bright spot, with rental reversion rising to 6.9 per cent, from 5.3 per cent in the previous quarter.

Management has also guided for mid-single-digit reversions for the rest of the financial year, noted CGSI.

Despite the overhang of the North American properties, analysts see divestments as the catalyst.

CGSI estimated that successful sales could lower MIT’s FY2028 borrowing cost to about 3.6 per cent, from the current 3.9 to 4 per cent.

That said, narrowing yield spreads in the Reit manager’s key markets may constrain accretive acquisition, noted the CGSI analysts.

DBS’ Tan noted that MIT’s DPU outlook “remains murky”.

“With DPU estimates remaining on a downtrend, we expect the stock to trade sideways but on a downtrend till a stabilisation is achieved, which we believe to be sometime in FY2028.”