Mapletree Industrial Trust - CGS-CIMB Research 2020-07-22: Taking A Prudent Stance

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Taking A Prudent Stance

Mapletree Industrial Trust’s 1QFY3/21 DPU of 2.87 Scts was slightly below expectations, at 23.5% of our FY21F.
The weaker Singapore portfolio performance was offset by higher US contribution.
We reiterate our HOLD rating with a higher DDM-based Target Price of S$2.87.

Mapletree Industrial Trust (SGX:ME8U) reported a 0.5% y-o-y decline in revenue to S$99.1m in 1QFY3/21 due to impact of rental rebates extended to tenants, offsetting new contributions from 7 Tai Seng, 30A Kallang Place and The Strategy.
NPI improved 0.9% y-o-y thanks to lower maintenance and utilities expenses.
Income available for distribution income rose 11.6% y-o-y to S$70.6m. However, DPU declined 7.4% y-o-y to 2.87 Scts as the group retained S$7.1m (c.90% payout ratio) in 1Q to mitigate the impact of mandated rental reliefs to tenants.

Portfolio occupancy decreased slightly to 91.1% at end-1Q while average portfolio rents slid 1.4% q-o-q as Mapletree Industrial Trust adopted a tenant retention strategy. Mapletree Industrial Trust also shared that rental arrears in Jun 2020 have increased to 1% of the previous 12 months’ revenue.
Looking ahead, Mapletree Industrial Trust has 11.3%/16.2% of its gross rental income to be renewed for the rest of FY21F and FY22F. Management indicated that about 55% of its Singapore portfolio is made up of SME tenants and about 90% of its tenants have continued or resumed operations. Mapletree Industrial Trust has rolled out a Covid-19 relief programme of up to S$20m.

Mapletree Industrial Trust enjoyed new contributions from its 50% stake in 13 data centres in North America in 1Q. It had also announced the purchase of the remaining 60% share in 14 US data centres (DC) from its sponsor at a total purchase consideration of US$218m (S$309.6m), based on an agreed property value of US$494m (S$701.5m).
Management expects the transaction to be completed towards end-3QCY20F, and it would further increase Mapletree Industrial Trust’s exposure to the data centre segment to 39% of assets under management. To fund this purchase, Mapletree Industrial Trust recently completed an S$410m private placement. This acquisition should further future-proof Mapletree Industrial Trust’s portfolio for a digital economy, in our view.

Mapletree Industrial Trust’s balance sheet remains robust with gearing and interest cover standing at 38.8% and 7.9x at end-1QFY21. Interest cost declined q-o-q to 2.6% and it has S$300m of committed facilities available.

We trim our FY21-23F DPU by 0.4-0.5% post results. However, our DDM-based Target Price is raised to S$2.87 as we adopt a lower cost of equity of 6.9% given its increased exposure to the faster growing data centre segment.
We keep our HOLD rating on limited share price downside risk in the near term on the back of rising exposure to the robust data centre segment.
See Mapletree Industrial Trust Share Price; Mapletree Industrial Trust Target Price; Mapletree Industrial Trust Analyst Reports; Mapletree Industrial Trust Dividend History; Mapletree Industrial Trust Announcements; Mapletree Industrial Trust Latest News.
Upside risk: faster than expected Singapore market recovery.
Downside risk: protracted recovery leading to longer and larger than projected vacancies.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-22

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.87 UP 2.810