Mapletree Industrial Trust - DBS Research 2020-10-29: Fuel For The Digital World

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Fuel For The Digital World

Promising 1HFY21 results as Mapletree Industrial Trust's manager reverts back to full payout.
Arrears remain low; portfolio occupancy levels to remain resilient as Mapletree Industrial Trust navigate through the challenges brought about by pandemic.
Further acquisitions in the datacenters space to watch as Mapletree Industrial Trust pivots towards into the “new economy”.

Mapletree Industrial Trust (SGX:ME8U) reverted back to full pay-out in 2QFY21, on the back of stabilising COVID-19 trend in Singapore, which we read positively.
On a y-o-y basis, Mapletree Industrial Trust reported revenues and net property income of S$103.4m and S$81.6m, representing a 1.5% and 2.0% rise respectively. The growth in revenues mainly came from the contribution from the 60% stake of its 14 USA data-centers, which more than offset the rental rebates and negative rental reversions seen across its Singapore portfolio. Distributions rose by 14.8% on increased JV contributions to S$72.9m. DPU dipped by 1.0% largely due to enlarged units in issue.
On a q-o-q basis, there was good momentum as revenues and net property income rose by 4.3% and 3.8%, mainly from contribution from acquisitions. DPUs was higher by 8.0% q-o-q due to the manager reverting to a 100% payout ratio this quarter.

Management sees improved operating visibility for its tenants. Total rental reliefs extended amounted to S$7.1m as of 1HFY21. The manager maintains its estimates of c.S$20m of overall rental reliefs (either mandatory or planned) may be extended in FY21, which in our estimates, most of which will likely be extended in 3QFY21.
Retained sums of S$13.7m will be paid out in stages and will likely help keep DPU stable in 2H21. Rental arrears remain manageable with collections high at over 98%.

Gearing dipped marginally to 38.1% vs 38.8% a quarter ago with overall metrics remaining stable (Fixed rates up to c.93.8%%, debt cost stable at 2.7% (vs 2.6% a quarter ago). Interest cover remain robust at 7.3x. Mapletree Industrial Trust has no debt up for renewal in FY21F, with a stable expiry profile in the coming years.

Portfolio occupancy rates improved to 92.3% (vs 91.1% in 1QFY21) with retention rate high at c.77% for the quarter. We note that Mapletree Industrial Trust’s flatted factories saw an improved to 88.1% (vs 85.4% a quarter ago)
which was mainly due to the removal of Kolam Ayer cluster in their statistics. On a “same-store basis”, flatted factory occupancy rates remain stable. Overall occupancy rates for its other asset classes remain stable.

There was active leasing done during the quarter with high renewal leases across the various subsectors. That said, we note rental reversionary remain negative for flatted factories (-2.3%) and stack-up (- 5.1%) but the Business Parks saw a positive rent reversion of 5.0%, mainly due to expiry of a fairly long lease that was signed > 5 years ago.
The manager remain a cautious stance that despite the stable COVID-19 trends, the outlook remain fragile and the manager will continue to actively manage occupancy (if able to) and forego rental growth in FY21 in order to defend cashflows, which will bring about resilience for the portfolio over time.

Looking ahead, as Mapletree Industrial Trust embark on the asset rejuvenation journey at Kolam Ayer cluster, we look forward to the completion of the acquisition of a datacenter in Virginia, USA for US$200-262m (S$$273-S$356m).
While a debt funded scenario may bring gearing up to slightly above 40%, given its current trading yield, we believe it may make sense to consider an equity fund raising to create more financial flexibility for the REIT to tap on opportunities to grow.
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.

Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2020-10-29

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