Results in Line, Maintain BUY

• Mapletree Industrial Trust (SGX:ME8U)’s 1Q21 DPU was down 7.4% y-o-y as a further SGD7.1m in tax-exempt income from its JVs was withheld (after the SGD6.6m in 4Q20).
• We see additional rental relief in 2Q21 given mandated relief from the COVID-19 (temporary measures) Act, which management expects could result in a SGD20.0m total tenant assistance package. Our forecasts are further adjusted for new units from its recent SGD410.0m EFR and the remaining 60% interest in its US data centre deal, which lifts our FY22-23 DPUs by 3-4%.
• We continue to favour Mapletree Industrial Trust’s positive growth fundamentals and its more resilient portfolio - DPU visibility has been strengthened by its rising hi-tech asset investments and overseas diversification.
• Our DDM-based Target Price rises to SGD3.30 (COE: 5.9%, LTG: 2.0%). BUY.

Higher Hi-tech, Business Park Contributions

• Mapletree Industrial Trust's 1Q21 revenue fell 0.5% y-o-y while NPI rose 0.9% y-o-y, as higher contributions from 7 Tai Seng Drive, The Strategy and 30A Kallang Place, were offset by rental rebates extended to its tenants. Portfolio occupancy fell marginally from 91.5% to 91.1%, with weaker occupancies across all segments except for its data centres, which were stable at 99.2%.
• Management has pushed hard on tenant retention, which increased to 81.2% from 77.5% in 4Q20, even as its gross rents in S’pore fell 1.0% y-o-y and 1.4% q-o-q to SGD2.08 psfpm. All segments except for data centres and light industrial buildings, saw lower rents with its rental rebates.

Increasing Its Data Centres Relevance

• Mapletree Industrial Trust has reclassified its data centres as a standalone property segment. This has increased to 31.6% of its AUM, and is expected to rise with the acquisition of a 60% interest in its first US data centre asset portfolio.
• The assets are well-placed and should help deepen its market penetration, underpinned by strong demand growth, with outsourced operational needs (in m sf) set to rise at a 9.5% CAGR from 2018-24E with a 14.0% CAGR rise in cloud computing revenues (according to 451 Research).

Liquidity Up on EFR, Index Inclusion

• Mapletree Industrial Trust's leverage rose to 38.8% (from 37.6%), with WADM at 3.9 years, interest cover at 7.9x, and its funding cost lower at 2.6% (from 2.9%). A recently-completed SGD410.0m private placement exercise has strengthened its balance sheet, while liquidity has improved further following its inclusion into the benchmark FSSTI on 22 Jun.

Source: Maybank Kim Eng Research - 22 Jul 2020