Mapletree Industrial Trust - CGS-CIMB Research 2021-04-30: Improving Outlook

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Improving Outlook

Mapletree Industrial Trust's FY21 DPU of 12.55 cents beat our estimates at 102.7% of our FY21F forecast.
Sequential improvement in portfolio occupancy, new contributions to boost FY3/22F income.
Upgrade Mapletree Industrial Trust to ADD with a higher DDM-based target price of S$3.05.

Mapletree Industrial Trust (SGX:ME8U) reported a 18.9%/17.3% y-o-y rise in 4QFY21 (Jan 2021 to Mar 2021) revenue/NPI to S$121.1m/S$91.8m respectively, due to the consolidation of 14 US data centres (DC), partly offset by rental rebates extended to tenants and loss of income from redevelopment of Kolam Ayer 2 (KA2).
Mapletree Industrial Trust's 4Q21 DPU of 3.30 cents, +15.8% y-o-y, includes a S$7.1m (0.3 cents) release of tax-exempt income withheld previously. FY21 DPU of 12.55 cents (+2.5% y-o-y) is slightly ahead of our expectations at 102.7% of our FY21 forecast.
Mapletree Industrial Trust took a ~1.3% haircut to its Singapore portfolio value in FY3/21 with BV standing at S$1.66/unit.

Mapletree Industrial Trust's portfolio occupancy continued to tick up sequentially to 93.7% at end-4Q, led by a 0.7% pt pick-up in Singapore portfolio occupancy to 92.9% and full occupancy at the recently acquired Virginia property. However, average Singapore rents slipped 2.8% q-o-q.
While Mapletree Industrial Trust guided that it gave a higher aggregate amount of tenant rent reliefs in 4QFY21, rent arrears were slightly lower q-o-q at 1.2% of the previous 12 months’ revenue (vs 1.4% in 3Q).
Looking ahead, Mapletree Industrial Trust has 14.8%/18.2% of its gross rental income to be renewed in FY22-23F, mainly from its Singapore portfolio. While operating environment appears to be stabilising with signs of business recovery in Singapore, management indicated that some near-term pressure on rent reversions is likely to continue.

Mapletree Industrial Trust completed the acquisition of a data centre and office in Virginia, US for US$207.8m in Mar 2021. The property is fully leased on a triple net basis with the initial lease term expiring in Jun 2022 with three five-year renewal options.
In addition, divestment of 26A Ayer Rajah Crescent for S$125m is slated for completion in 2QCY21. The sale price is 18.1% above the total development and transaction cost. Once completed, Mapletree Industrial Trust could potentially distribute part of the divestment gains.
Meanwhile, the planned redevelopment of KA2 into a new hi-tech industrial precinct with a gross floor area of 865.6k sqft, commenced construction in late Nov 2020 and completion is scheduled for 2H22F. Mapletree Industrial Trust guided that it targets to achieve a 7% yield on cost from this redevelopment exercise.
While Mapletree Industrial Trust’s gearing rose to 40.3% at end-4Q, following the purchase of the Virginia property, it is still well positioned to continue to tap into inorganic growth opportunities, in our view.

We tweak our FY22-23F DPUs forecast up by 0.76-0.85% with the inclusion of contributions from the recently acquired Virginia property. Accordingly, our DDM-based target price for Mapletree Industrial Trust is raised to S$3.05.
With expectations of gradually improving Singapore operations and following the recent share price dip, we upgrade our rating for Mapletree Industrial Trust to ADD on valuation grounds.
See
Upside risk: distribution of divestment gains (not factored into our current estimates).
Downside risk: protracted recovery leading to longer recovery period in vacancies and rentals.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-30

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