Financial Stewardship: Headwinds for MIT? (Hint: Cyxtera Technologies)

Monday, 1 May 2023

Headwinds for MIT? (Hint: Cyxtera Technologies)

Mapletree Industrial Trust can be considered as one of the blue-chip Reits of Singapore. Part of the reasons include a strong govt linked sponsor, well established history, diversified portfolio of properties in Singapore and USA (which includes lucrative Data Centres).

It recently announced a slightly disappointing Q4 & FY22 results, which saw a slight dip to 3.33c in DPU. As seen from the chart below, MIT had a previous solid history of increasing DPU since FY10, with the exception of FY20 due understandably to Covid pandemic, though it has since recovered strongly to increasing payouts again. However in recent years of FY21/22, we are seeing a plateau and even worrying decreasing trend of falling DPU. Are the best years of MIT over?!

Of course with the previous 9 interest rate hikes since Mar 2022 till now, Reits being a leveraged business is not spared from the increase interest rate expanses to its loans. Though 75% of its debt is in Fixed rates, the impact on DPU can still be seen with the increase in base interest rates. To be fair, no one would have honestly thought in early 2022, that the USA Fed would increase the interest rates so quickly and so frequently.

Another area of concern could be with MIT's 3rd largest tenant (3.2% rental income) rumoured to be Cyxtera Technologies. Even MIT CEO commented on the 2023 outlook to be "a challenging year with increased risk to global financial stability due to the banking crisis and geo-economic fragmentation."