Still Our Preferred Industrial Sector Pick, BUY

• Mapletree Industrial Trust (SGX:ME8U) delivered better than expected NPI in 4Q20, led by acquisitions and its redevelopment projects, while its FY20 DPU would have risen by 3.1% y-o-y excluding capital retained.
• We continue to favour its positive growth fundamentals and more resilient portfolio - DPU visibility is strengthened by its rising hi-tech asset investments and overseas diversification. This, and SGD1.6-2.3b in debt headroom, should support further DPU-accretive deals.
• We lower DPUs by 1-4%, on a slower rental growth outlook, but our DDM-based Target Price stays at SGD2.95 (COE: 6.5%, LTG: 2.0%) as we roll-forward to FY21.
• We see valuations supported by growth momentum on its expanding hi-tech mix (now at 55.0% of AUM) and acquisition upside from its sponsored US data centre assets in the medium-term.
• BUY.

Occupancies Up, Led by Hi-tech

• Mapletree Industrial Trust's 4Q20 revenue and NPI rose 3.0%/3.2% y-o-y on acquisitions and development projects, while DPU fell 7.5% y-o-y with SGD6.6m in tax-exempt income from its JVs retained to provide for cashflow flexibility.
• Its portfolio occupancy improved q-o-q from 90.9% to 91.5% (in 4Q20) - this was up from 90.5% to 90.7% in Singapore from hi-tech (98.4% to 98.8%), business park (85.1% to 86.6%), and stack-up/ramp-up buildings (90.4% to 94.4%). Its US occupancy rose from 97.8% to 98.7% with the addition of its 10 powered-shell data centres (100% leased), which also pushed its WALE up from 3.9 to 4.2 years.

Focused on Tenant Retention, Rents Could Dip 2-3%

• Mapletree Industrial Trust's gross rents rose 1.9% y-o-y with positive rental reversions for its hi-tech buildings (at +2.5%). A SGD13.7m rental relief package (in addition to a pass on of property tax rebates) should help its retailers at 18 Tai Seng (1.5 months) and industrial tenants and operators (0.5-1.0 month).
• Management expects slower rental growth in Singapore (down 2-3%) from previously bottoming out, and low visibility currently on its SME tenancies, at 45% of its overall portfolio (55% for Singapore).

AUM Up on Deals, Cap Rate Compression

• Mapletree Industrial Trust's AUM jumped 23.6% y-o-y to SGD5.9b from deals, with data centres now contributing 31.6% of its AUM, and expected to rise. Cap rates have tightened by 15-75bp across its portfolio, with strongest compression for its hi-tech (50-55bp) and light industrial buildings (50-75bp).
• Leverage has risen to 37.6% (from 34.1%, 3Q20) with completion of its second US deal, while refinancing has pushed its WADM to 4.7 years (from 4.1 years) and funding cost down to 2.9% (from 3.0%).
• Mapletree Industrial Trust's balance sheet remains healthy with interest cover at 7.7x and SGD1.6-2.3b in debt headroom.

Source: Maybank Kim Eng Research - 28 Apr 2020