Mapletree Industrial Trust - DBS Research 2021-05-03: Capturing The Digital Dream

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Capturing The Digital Dream

Mapletree Industrial Trust (SGX:ME8U)’s (MINT) gross revenue and net property income (NPI) for FY21 increased by ~10% to S$447.2m and S$351.0m respectively. The increase was mainly driven by the consolidation of 14 data centres in the US (previously accounted for as associates) and 7 Tai Seng Drive. This offsets the rent reliefs offered to tenants year-to-date (c.S$13m, below estimates) and the loss of income from the redevelopment of Kolam Ayer 2 project.
This drove a ~11% rise in distributable income to S$295.3m, while Mapletree Industrial Trust's DPU rose 2.5% to 12.55 cents, ahead of our estimates.

Mapletree Industrial Trust's gearing inched up slightly to 40.3% (vs 37.3% a quarter ago). All in cost of debt remained stable at 2.8% (vs 2.9% a quarter ago) with interest coverage ratio at 6.4x (12-month trailing ratio).
The reported dip in valuations of 1.2% for its Singapore portfolio was largely due to impact of shortening land tenures and lower rents assumed by third-party valuers. Cap rates remained stable ranging from 6.0-7.25%.
For the US portfolio saw higher values on average.
NAV increased slightly to S$1.66 per unit and at the last close, Mapletree Industrial Trust was trading at a P/NAV of 1.70x.

Overall arrears ratios have declined slightly to 1.2% (1.4% as of Dec’20), indicating improving overall tenant strength and credit. The manager has dished out rental reliefs to the tune of ~S$13.0m (S$9m as of 9MFY21) which is settling below previous estimates of S$14-15m. This is lower than the S$20m guided at the onset of COVID-19 back in Mar’20, implying that the manager has managed to maintain good financial and risk assessment of its portfolio.
The manager has retained a further S$6.7m in distributions and coupled with potential gains of ~S$18m from the divestment of 26A Ayer Rajah Crescent, there may be potential gains to the tune of 1 cents that may be paid to unitholders over the next couple of quarters.

Mapletree Industrial Trust's occupancy rates across its various sub-segments improved marginally with portfolio occupancy rates increasing marginally to 93.7% (vs 93.1% in 3QFY21).
The business parks saw a slight dip to 84.2% due to the exit of an IT tenant at The Signature (Changi Business Park). This weakness is more than offset by the close to 3-ppt improvement in occupancy rate at its stack-up/ramp-up property (96.7% vs 92.9%).
Retention rates remain high at 85.7%. Looking ahead, we see some humps to navigate through but should see increasing demand from end-tenants given the turnaround in the Singapore economy.
We do note that Razer, which occupies about ~60k sqft of space in its flatted factory cluster, has signed a short-term lease extension ending Sep’21 and will likely move to its own built-to-suit facility after that. Reversionary trends remain marginally negative at ~3.0% as the manager continues to focus on occupancies to fill up vacant space, which is a proven strategy to keep portfolio cashflows stable.

The manager has recently started construction on the redevelopment of the Kolam Ayer cluster, starting with two industrial properties (one building already pre-committed to a biomedical tenant) at a revised all-in cost estimate of S$300m. This is higher given cost/labour pressures brought about by the COVID-19 pandemic. The manager might convert one of the remaining industrial properties into a data centre. Completion of the project remains in 2H22, and will be a medium boost to earnings.
In FY22, overall distribution growth of 3.5% is driven mainly from the recent completion of its data centre assets.

We have adjusted our estimates to include the gains from the sale of 26A Ayer Rajah Road which is expected to be paid to unitholders over two years , boosting Mapletree Industrial Trust's DPUs by 3%.
See
We continue to believe that investors should stay the course with Mapletree Industrial Trust as the manager seeks to continuously pivot the portfolio towards more data centre-focused properties supporting its valuations (1.7x P/NAV) and forward yields of 5.1-5.3% remain attractive.
We maintain our BUY call on Mapletree Industrial Trust with target price of S$3.25.

Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2021-05-03

SGX Stock Analyst Report BUY MAINTAIN BUY 3.250 SAME 3.250