• Mapletree Industrial Trust (SGX:ME8U)'s 4Q/FY20 DPU of 2.85/12.24 Scts, in line, at 26/99% of our FY20F forecast.
• The weaker outlook for Singapore in FY3/21F will be partly offset by a full-year’s income from data centres in US and Canada, in our view.
• Upgrade to ADD from Hold with unchanged DDM-based Target Price of S$2.66.

4QFY3/20 Results Highlights

• Mapletree Industrial Trust reported a 3%/3.2% y-o-y rise in 4Q revenue/NPI with contributions from 18 Tai Seng, 30A Kallang Place and 7 Tai Seng, partly offset by lower revenue from Kolam Ayer 2 Cluster redevelopment.
• Distributable income grew 15.4% y-o-y to S$69.2m; however, DPU declined 7.5% y-o-y to 2.85 Scts as the group retained S$6.6m (90.5% payout ratio) in 4Q. FY3/20 DPU of 12.24 Scts was slightly higher y-o-y (97.5% payout ratio). Excluding the income retained, 4Q and FY3/20 DPU would have risen by 2.3%/3.1% y-o-y.
• Mapletree Industrial Trust revalued its portfolio, increasing BV to S$1.62/unit

High Portfolio Occupancy, Weaker Outlook for Singapore Portfolio

• Portfolio occupancy improved to 91.5% at end-4Q with an uptick in Singapore properties and higher US occupancy. Rental reversion was stable in 4Q.
• Looking ahead, Mapletree Industrial Trust has 17.7%/17% of its gross rental income to be renewed in FY21F/22F. Management said about 55% of its Singapore portfolio is made up of SME tenants and about half its tenants stayed open during the Circuit Breaker period.
• That said, it has rolled out a Covid-19 relief programme of up to S$13.7m. Flatted factories accounted for 37% of Mapletree Industrial Trust’s FY3/20 NPI. Accordingly, we have assumed 1-2 months’ of rental rebates within the flatted factories portfolio and factor in a 1-3% pt increase in vacancies over FY21-22F.

US Data Centre Contributions to Partly Buffer Singapore Weakness

• Nonetheless, a full-year’s contribution from the newly-acquired data centres in US and Canada should partly offset some of the expected weaker Singapore performance, in our view.
• Mapletree Industrial Trust purchased an attributable 50% stake in 3 fully fitted hyperscale and 10 powered shell data centres in US and Canada, for US$695.4m. We estimate these assets could add S$29m of net profit to MINT’s FY21F bottomline. We estimate total overseas contributions to make up 16% of Mapletree Industrial Trust’s FY21F distribution income.

Strong Balance Sheet

• Mapletree Industrial Trust’s gearing/interest cover were 37.6%/7.7x at end-4QFY20. It has completed its debt refinancing for FY21F and has S$380m of committed facilities available.

Upgrade to ADD From Hold

• We cut our FY21-22F DPU by 2.4-8.6% after assuming a 1-3% pt reduction in occupancy and bake in a 1-3% decline in spot rents over the next two years. We have also assumed a dividend payout ratio of 98% in FY3/21F and 100% thereafter. Our DDM-based Target Price is unchanged at S$2.66.
• Mapletree Industrial Trust's share price has fallen 19% from its recent high and offers a potential total return of 14%. Hence, we upgrade our rating to ADD from Hold.
• We continue to like Mapletree Industrial Trust for its good execution track record with visible earnings growth from ongoing development activities and exposure to the US data centre sector.
• Re-rating catalyst: faster-than-expected Singapore market recovery.
• Downside risk: protracted recovery leading to longer and larger than projected vacancies.

Source: CGS-CIMB Research - 28 Apr 2020