Mapletree Industrial Trust - OCBC Investment 2020-07-22: Positive Transition Offset By Near-term Headwinds

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Positive Transition Offset By Near-term Headwinds

Mapletree Industrial Trust's 1QFY21 DPU fell 7.4% y-o-y due to income retention.
Rental reversions mostly negative.
Unchanged Fair Value of S$3.25.

Mapletree Industrial Trust (SGX:ME8U) reported its 1QFY21 results which met our expectations. Gross revenue fell 0.5% y-o-y to S$99.1m but NPI rose 0.9% to S$78.7m due to a higher NPI margin of 79.4% (+1.1 ppt y-o-y).
Amount available for distribution rose 11.6% y-o-y to S$70.6m but DPU dipped 7.4% to 2.87 S cents. This constituted 23.5% of our FY21 forecast and the decline was attributed to the retention of S$7.1m (~0.32 S cents per unit) of tax-exempt income (distributions relating to joint ventures) in light of the Covid-19 pandemic. If this income had not been withheld, DPU would instead have increased 2.9% y-o-y.

Operationally, headwinds from Mapletree Industrial Trust’s Singapore operations were apparent, given the fact that ~55% of its Singapore portfolio (or 45% of overall portfolio) by gross rental income are SME tenants. About 90% of Mapletree Industrial Trust’s tenants (by gross rental revenue) have continued or resumed their business operations. However, management estimated that ~S$20m of rental reliefs would need to be extended to its tenants. We had already baked this in our forecasts previously.
Rental arrears of more than one month stood at 1.0% of the previous 12 month’s gross revenue, as at 30 Jun 2020. This was higher than the 0.2% recorded in 4QFY20 and Mapletree Industrial Trust is working with these tenants on rental restructuring plans.
Portfolio occupancy came down slightly by 0.4 ppt q-o-q to 91.1% due to Singapore as its North American occupancy was unchanged at 98.7%.
Rental reversions for renewal leases came in at -3.1% for Stack-Up/Ramp-up Buildings, -1.9% for Business Park Buildings, -1.7% for Hi-Tech Buildings, -1.2% for Flatted Factories and the only positive was for Light Industrial Buildings (+2.5%). This is in-line with management’s -2% to -3% guidance previously.

Despite headwinds from Covid-19, we continue to like Mapletree Industrial Trust’s positive transition towards a hi-tech/data centre industrial REIT. There was a reclassification of its property segments disclosure which separated its Data Centres segment from the Hi-Tech Buildings segment. The former contributed 10.0% of Mapletree Industrial Trust’s 1QFY21 NPI and commands the highest NPI margin amongst the business segments. Exposure to Data Centres is higher than this for Mapletree Industrial Trust as contribution from its North American data centre properties are equity accounted.
We maintain our DPU forecasts and S$3.25 fair value estimate.
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.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-07-22

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