SINGAPORE (July 22): Mapletree Industrial Trust (MIT) has weathered the brunt of Singapore’s circuit breaker earlier this year and is now riding on digital tailwinds, thanks in part to its “cautious stance” in cash management, say DBS Group Research analysts Derek Tan and Dale Lai in a report today. DBS maintains its “buy” call on the company with a target price of $3.25. 

As 1QFY2021 suffered the full brunt of the circuit breaker during April to May, MIT took a cautious stance and withheld $7.1 million (or a total of $13.7 million since 4QFY2020), from its tax-exempt income to maintain flexibility in cash management, note Tan and Lai. 

“The total amount withheld is expected to be released from 2QFY21 onwards when majority of rebates are expected to be expensed. Overall financial performance was in line with expectations.”

In addition, around 70% of the company’s tenants are in the essential services sector and continued operating during the circuit breaker, say analysts. Approximately 90% of its tenants in Singapore have now resumed operations. 

“The manager estimates that overall rental reliefs (either mandatory or planned) could amount to $20 million in FY2021, which we have factored into our estimates. The retained sum of $13.7 million will be paid out in stages to negate the impact of these reliefs in the coming quarter,” say Tan and Lai.

In June, Mapletree Industrial Trust replaced Singapore Press Holdings on the Straits Times Index (STI), joining the 30-constituent stocks on the index. Earlier this month, the company acquired a 60% stake in 14 US data centres, touted as a likely key earning driver in 2HFY2021. 

See: Mapletree Industrial Trust to replace SPH in the STI

On earnings, the company’s 1QFY2021 revenues declined 0.5% y-o-y to $99.1 million while net property income (NPI) increased by 0.9% to $78.7 million. “The weaker topline came mainly from rental rebates as part of its Covid-19 Assistance and Relief Programme, slightly offset by the full quarter revenue contribution from 7 Tai Seng, The Strategy, and 30A Kallang Place,” say analysts.

See also: Mapletree Industrial Trust posts 7.4% y-o-y fall in 1Q20 DPU to 2.87 cents

Distributable income rose by 11.6% to $70.6 million, driven by higher contribution from its joint ventures from its expanded US data centre portfolio. “After retaining $7.1 million, DPU was 2.87 cents, (-7.4% y-o-y; +0.7% q-o-q), in line with our projections.”

Given the fragile economic outlook, the manufacturing sector is expected to be impacted and MINT, as one of the largest landlords in Singapore, will likely be hit, say analysts. “We believe the Manager will take on the strategy of managing occupancy at the expense of rental growth in FY2021 in order to defend cashflows.”

That said, the company’s operating metrics remain “resilient”, say the analysts, with portfolio occupancy table at 91.1%, compared to 91.5% in 4QFY2020. “Retention rate was high at approximately 81% for the quarter, which we reckon was due to the lack of movement and relocation during the circuit breaker.”

MINT’s flatted factories saw a slight dip to 85.4%, from 86.2% a quarter ago, mainly due to progressive re-location of tenants at the Kolam Ayer cluster, where redevelopment of the site is expected to commence in the second half of this year. 

“We note that close to 74 out of 108 existing tenants remained within the portfolio at alternative clusters. Excluding this impact, the flatted factory portfolio would have seen higher occupancy rates at close to the 88% level,” say analysts.

Although gearing increased marginally to 38.8% from 37.6% a quarter ago, the company’s financing metrics remain solid, say analysts. “MIT has only S$45m of debt expiring in the coming financial year, which should be easily renewed. Approximately 86.3% of borrowings are on fixed rates. Debt cost declined to 2.6% (vs 2.9% a quarter ago). Interest cover remained robust at 7.9x (trailing 12-mth ICR is 7.2x).”

“We remain excited on MIT’s outlook, driven by the completion of its planned acquisition of a 60% stake in 14 data centres in the US in 2QFY2021, ongoing asset rejuvenation from the development of Kolam Ayer 2 cluster coupled with full-year contribution from its 50% stake in 13 data centres in the US that was completed last quarter.”

As 10.42am, units in Mapletree Industrial Trust are trading at 1 cent lower, or 0.34% lower, at $2.96.