Mapletree Industrial Trust - OCBC Investment 2021-10-27: Solid DPU Growth But Rental Reversions Still Soft

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Solid DPU Growth But Rental Reversions Still Soft

Mapletree Industrial Trust (SGX:ME8U)'s 2QFY22 DPU jumped 11.9% y-o-y to S$0.0347.
Negative rental reversions for three out of four reported segments.
Occupancy moved down to 93.7%.

Mapletree Industrial Trust reported a solid set of 2QFY22 results which beat our expectations but was in-line with consensus. Gross revenue and NPI jumped 50.5% and 47.4% y-o-y to S$155.6m and S$120.3m, respectively.
The significant increase was due to new acquisitions and the consolidation of 14 data centres which were previously equity accounted, coupled with lower rental reliefs as compared to 2QFY21.
DPU grew 11.9% y-o-y to S$0.0347, the third consecutive quarter of double-digit increase. For 1HFY22, Mapletree Industrial Trust’s DPU jumped 14.2% y-o-y to S$0.0682. This accounted for 52.4%/50.1% of ours/Refinitiv consensus forecasts.
Management alluded to potential margin pressures ahead, given that contract renewals for services engaged are expected to increase by 5-10% on a like-to-like basis, while utility costs are also likely to see an increase.

Mapletree Industrial Trust registered negative rental reversions for renewal leases for three out of its four reported segments. This came in at -5.8%, -1.6% and -0.8% for its Business Park Buildings, Flatted Factories and Stack-Up/Ramp-Up Buildings segments. Average rental rate for Mapletree Industrial Trust’s Singapore portfolio remained stable q-o-q at S$2.13 psf/month in 2QFY22.
Management highlighted that negative rental reversions are estimated to bottom out only in the middle of 2022 at the earliest.
Mapletree Industrial Trust’s overall portfolio occupancy dipped 0.6 percentage points (ppt) q-o-q to 93.7%. Singapore saw a slight increase from 93.4% to 93.6%, but the US had a decline of 3.9 ppt q-o-q to 93.9%. This was largely attributed to the inclusion of a portfolio of 29 data centres in the US which was acquired on 22 Jul 2021. This portfolio had an occupancy of 87.8% when Mapletree Industrial Trust announced the proposed acquisition. This was in turn due to one asset within the portfolio which has a lower occupancy following a lease termination.

Mapletree Industrial Trust’s aggregate leverage ratio increased from 31.0% (as at 30 Jun 2021) to 39.6% (as at 30 Sep 2021) following the completion of the aforementioned data centre portfolio acquisition. We raise our FY22 DPU forecast by 3.5% and our fair value estimate for Mapletree Industrial Trust inches up marginally from S$3.41 to S$3.42.
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Mapletree Industrial Trust’s ESG rating was downgraded in Oct 2020, largely driven by an increase in Mapletree Industrial Trust’s recurring related party transactions with its controlling shareholder, which could undermine the interests of minority shareholders. Furthermore, Mapletree Industrial Trust’s classified board structure and lack of provisions such as proxy access or majority voting, may limit minority investors’ ability to influence company decisions.
Although the number of transactions with its sponsor has increased, we believe there are mitigating factors to protect minority unitholders’ interests, such as having the properties to be acquired being valued by an independent valuer. Furthermore, Mapletree Industrial Trust has historically been able to acquire properties from its sponsor at a discount to the independent valuation and make it DPU and NAV accretive to unitholders.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-10-27

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