• Extending help through a COVID-19 tenant package.
• Near-term impact on distributions expected; but occupancy sustainability is key.
• Estimates revised by 5-7%; acquisition assumption removed.

Casting a Lifeline to Tenants

• Mapletree Industrial Trust (SGX:ME8U) has announced a COVID-19 tenant relief package amounting to S$13.7m for its industrial tenants in Singapore. This is on top of S$10.5m in property tax rebates (100% for qualifying [retail] and 30% of property tax for qualifying industrial spaces) which will be passed to tenants.
• The rebates are targeted and will be given:
  • 1.5-month fixed rent for retail tenants at 18 Tai Seng ( < 5% of top line)
  • 1.0-month net rent (excluding service charge) for industrial canteens
  • 0.5-month net rent or utilisation of security deposits for industrial tenants.
• The impact of these measures will be mainly felt in 1QFY21 (quarter starting 1 April 2020).

Our Thoughts

Landlord with a heart.

• The relief programme shows Mapletree Industrial Trust’s commitment to ride out disruption brought about by the COVID-19 outbreak with its tenants. We understand that its properties remain open to support tenants who are in essential service sectors and that 70% of its tenants (by gross rental income) remain operational at their premises (despite reduced operating capacity).

Incentives in line with JTC.

• We estimate that together with the property tax rebates offered by the government which translates into 0.5 month of rent for industrial tenants, the additional incentives will put Mapletree Industrial Trust’s total rent relief programme to be in line with what Jurong Town Corporation (JTC) is providing to tenants (total one month of rent relief) for public industrial spaces.

5% cut to distribution income.

• We estimate that the reliefs provided translates into roughly 5% of FY21F distributable income, assuming that 100% of the package is taken up, our DPU estimates will be reduced to 12.3 -12.4 Scts (vs 13.0 Scts), implying a 5% cut in DPU.
• That said, Mapletree Industrial Trust can still deliver fairly stable DPUs driven mainly by the full-year contribution from the acquisition of a US data-centre portfolio.

Other industrial REITs will likely follow suit.

• Most industrial landlords have indicated that cashflows and rental payments have been prompt to date. With Mapletree Industrial Trust, one of the largest industrial landlords, taking the lead in providing relief programmes to tenants, we expect most to provide some form of their own incentive programme, subject to exposures and tenant needs.
• Overall, we do not expect a blow-out in DPUs but a marginal 3-5% impact, if any. The mid-cap S-REITs may see a little more downside, subject to portfolio.

A well-owned sector as investors stay vested.

• Our talks with various clients indicate that the industrial S-REIT sector remains a fairly well-owned sector amongst investors given its relative resilience. We believe that investors will remain vested in industrial S-REITs given the perception of the sector’s relatively manageable impact to DPUs amid the operational disruptions.
• We believe investors will remain focused on logistics (Mapletree Logistics Trust (SGX:M44U)), data centres (Mapletree Industrial Trust, Keppel DC REIT (SGX:AJBU)) and Business Parks (Ascendas REIT (SGX:A17U)) for their safety and resilience.

Earnings Revision

Cut in estimates of 5-7%.

• We have cut our estimates by 5- 7% to factor in
  1. rent relief offered in 1Q20, and
  2. a slight downward revision in rental reversions and occupancy rates, and
  3. removal of acquisition estimates.
• Our Target Price is adjusted down to S$2.70 (vs S$3.00 previously) as we hike in betas in our discount rate assumptions.

Source: DBS Research - 17 Apr 2020