• Mapletree Industrial Trust’s 1QFY3/21 DPU of 2.87 Scts was slightly below expectations, at 23.5% of our FY21F.
• The weaker Singapore portfolio performance was offset by higher US contribution.
• We reiterate our HOLD rating with a higher DDM-based Target Price of S$2.87.

Mapletree Industrial Trust's 1QFY3/21 Results Highlights

• Mapletree Industrial Trust (SGX:ME8U) reported a 0.5% y-o-y decline in revenue to S$99.1m in 1QFY3/21 due to impact of rental rebates extended to tenants, offsetting new contributions from 7 Tai Seng, 30A Kallang Place and The Strategy.
• NPI improved 0.9% y-o-y thanks to lower maintenance and utilities expenses.
• Income available for distribution income rose 11.6% y-o-y to S$70.6m. However, DPU declined 7.4% y-o-y to 2.87 Scts as the group retained S$7.1m (c.90% payout ratio) in 1Q to mitigate the impact of mandated rental reliefs to tenants.

Slight Drag on Portfolio Occupancy and Rents

• Portfolio occupancy decreased slightly to 91.1% at end-1Q while average portfolio rents slid 1.4% q-o-q as Mapletree Industrial Trust adopted a tenant retention strategy. Mapletree Industrial Trust also shared that rental arrears in Jun 2020 have increased to 1% of the previous 12 months’ revenue.
• Looking ahead, Mapletree Industrial Trust has 11.3%/16.2% of its gross rental income to be renewed for the rest of FY21F and FY22F. Management indicated that about 55% of its Singapore portfolio is made up of SME tenants and about 90% of its tenants have continued or resumed operations. Mapletree Industrial Trust has rolled out a Covid-19 relief programme of up to S$20m.

Increasing Exposure to Data Centre Segment

• Mapletree Industrial Trust enjoyed new contributions from its 50% stake in 13 data centres in North America in 1Q. It had also announced the purchase of the remaining 60% share in 14 US data centres (DC) from its sponsor at a total purchase consideration of US$218m (S$309.6m), based on an agreed property value of US$494m (S$701.5m).
• Management expects the transaction to be completed towards end-3QCY20F, and it would further increase Mapletree Industrial Trust’s exposure to the data centre segment to 39% of assets under management. To fund this purchase, Mapletree Industrial Trust recently completed an S$410m private placement. This acquisition should further future-proof Mapletree Industrial Trust’s portfolio for a digital economy, in our view.

Robust Balance Sheet

• Mapletree Industrial Trust’s balance sheet remains robust with gearing and interest cover standing at 38.8% and 7.9x at end-1QFY21. Interest cost declined q-o-q to 2.6% and it has S$300m of committed facilities available.

Reiterate HOLD for Mapletree Industrial Trust

• We trim our FY21-23F DPU by 0.4-0.5% post results. However, our DDM-based Target Price is raised to S$2.87 as we adopt a lower cost of equity of 6.9% given its increased exposure to the faster growing data centre segment.
• We keep our HOLD rating on limited share price downside risk in the near term on the back of rising exposure to the robust data centre segment.
• Upside risk: faster than expected Singapore market recovery.
• Downside risk: protracted recovery leading to longer and larger than projected vacancies.

Source: CGS-CIMB Research - 22 Jul 2020