Brokers' take: DBS raises Mapletree Industrial Trust target to S$3.35 on recent acquisitions

DBS Group Research has reiterated its "buy" call on Mapletree Industrial Trust (MIT), while raising its target price on the real estate investment trust (Reit) to S$3.35 from S$3.25, assuming a target yield of close to 4 per cent.

The move comes after DBS updated its estimates to factor in MIT's latest acquisitions and a recently completed equity fundraising exercise.

In a report on Wednesday, analysts estimated MIT's completed acquisition of 29 data centres in the US, as well as its redevelopment of the Kolam Ayer cluster, to drive the trust's distribution compound annual growth rate (CAGR) by an estimated 7 per cent over the coming two years.

On top of the improved earnings visibility, they also like the Reit for its debt-funded capacity to pursue growth in the data centre space.

Its latest set of Q1 FY2022 financial results also continued to show operational strength, in their view, along with stable financial metrics despite expectations of increased gearing due to the Reit's data centre acquisitions in the US.

"Even with the higher expected gearing, we remain comfortable that MIT's balance sheet remains well capitalised with diversified funding sources and no concentration in refinancing," said the analysts.

"We believe investors have not priced in the value in MIT's portfolio. The redevelopment of its land bank of older flatted factories will drive portfolio gross floor area and medium-term growth in distributions and net asset value (NAV), keeping valuations at a premium," they added.

Given that MIT's data centre-focused properties now contribute to about 50 per cent of its assets under management, DBS analysts believe this supports the Reit's 1.6 times price-to-NAV valuation. They also view the Reit's forward yields of 4.9 per cent to 5.1 per cent as attractive.

"With long weighted average lease expiry and 7 per cent CAGR in distribution per unit over FY2022 to FY2023, we believe that MIT should continue to trade like a data centre proxy," they said.

Units of MIT were trading S$0.07 or 2.4 per cent higher at S$2.95 as at 3.41pm on Wednesday.