Mapletree Industrial Trust - DBS Research 2020-04-28: A Position Of Strength


Mapletree Industrial Trust - A Position Of Strength

  • Retention of S$6.6m in distributions (c.3%) as a buffer for uncertainties ahead.
  • Metrics to remain stable in the face of a sharp economic contraction.
  • Datacenter portfolio to contribute positively in FY21F.
  • Maintain BUY and S$2.70 Target Price.

Mapletree Industrial Trust's FY20 DPU (after retention) in line

FY20 DPU in line with expectations (after retention, if not above).

  • The COVID-19 outbreak has dented the outlook for Mapletree Industrial Trust (SGX:ME8U) somewhat with the Manager opting to take the safe route by withholding S$6.6m of tax-exempt income from its US data-centers in 4Q20 for better flexibility in cash management.
  • For the full year, FY20 revenues and net property income (NPI) rose by 7.9% and 10.5% respectively to S$405.6m and S$318.1m respectively.
  • The stronger operational numbers were primarily from the past acquisitions of 18 Tai Seng, 7 Tai Seng and Mapletree Sunview 1. As a result, distributable income rose by 14.5% to S$265.3m.
  • After retaining S$6.6m, this translates to a DPU of 12.24 Scts, 0.7% higher y-o-y. This is in line with our projections.

Slower momentum ahead.

  • Mapletree Industrial Trust's 4QFY20 revenues and NPI while higher by 3.0% and 3.2% on a y-o-y basis, were notably lower compared to a quarter ago with revenues and NPI down 0.8% and 4.5%, mainly due to the winding down of Kolam Ayer 2 Cluster which will be upgraded into a new development as well as higher operational expenses.
  • Looking ahead, we anticipate q-o-q weakness in the near term given S$13.7m in rental reliefs provided to tenants under its COVID-19 Assistance and Relief Programme on top of S$10.5m in property tax rebates (from government) to tenants. We have factored these expenses in FY21 distribution projections.

Higher gearing levels, but other metrics remain solid.

  • Valuations on a like-for-like basis increased marginally (S$79.7m + capitalised cost of S$31.9m) for the SG portfolio mainly due to higher valuations for its Hi-specification properties, business parks and stack-up/ramp-up factories offset by a slight decline in values for its flatted factories, which we reckon is due to the shorter land tenures.
  • Mapletree Industrial Trust's NAV per share increased to S$1.62 as a result. Balance sheet remains strong with a weighted average debt tenure of 4.7 years with interest cost stable at 2.9% (down 10bps y-o-y). Approximately 73.4% of its interest cost has been hedged into fixed rates. Interest coverage ratio remains high at 7.7x.

Operating metrics resilient.

  • Portfolio occupancy rates remained stable at 91.5% (vs 90.9% in 3QFY20) with retention rate high at c.78% for the quarter. We saw an overall improvement in occupancy rates in Singapore (90.7% in 4Q20) with improvement across most asset classes - Hi-Tech hit a high of 98.8% (vs 98.4% in 3Q20), Business Parks at 86.1% (vs 85.1% in 3QFY20) due to improvement in occupancy rates at The Strategy building, stack-ups improved to 94.0% from 90.4%, while light industrial buildings remained stable at 80.0%.
  • Mapletree Industrial Trust’s flatted factories saw a slight dip to 86.2% (vs 87.5% a quarter ago) mainly due to progressive re-location of tenants at Kolam Ayer cluster, as the redevelopment of the site is expected to commence in 2H of 2020. The Manager reported that arrears ratio is low at 0.2% as of end FY20 but may rise if more tenants seek shelter under the COVID-19 (Temporary Measures) Act.

Rental reversionary trends mixed; but may turn down in FY21.

  • While green shoots were emerging with rental reversionary trends turning positive /flattish for most subsectors (with the exception for new leases for flatted factory space which is due to discounts given to tenants relocating out of the Kolam Ayer Cluster), we anticipate that rental reversionary trends may turn down in FY21F given the expected economic downturn.
  • With the Singapore economy expected to contract, the manufacturing sector is expected to be impacted somewhat and Mapletree Industrial Trust, being one of the largest landlords in Singapore, will likely be affected. We believe that the Manager will take on the strategy of managing occupancy (if able to) and forego rental growth in FY21 in order to defend cashflows going into the recession.
  • Limiting downside risk is a long WALE of 3.4 years for its Singapore portfolio, with c.17.7% of leases up for renewal in FY21F. The full year contribution from the acquisition of its US data-center portfolio will also provide a buffer against a lower y-o-y performance.

Robust outlook driven by acquisitions and continued asset rejuvenation.

Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2020-04-28
SGX Stock Analyst Report BUY MAINTAIN BUY 2.700 SAME 2.700