Mapletree Industrial Trust (SGX:ME8U) is the second Mapletree REIT to hold its annual general meeting (AGM) this week (the first one being Mapletree Logistics Trust, and you can find my summary of it here for those of you who have missed it), which I have attended as a unitholder to receive the latest updates from the management team.
Similar to Mapletree Logistics Trust’s AGM yesterday, the meeting was a short one (lasting just a little over 30 minutes from start to finish), and attendees were allowed to submit any questions they may have, which the REIT’s management addressed after the presentation (more on that later in this post.)
For the benefit of those who were not able to attend the virtual meeting (no physical attendance was allowed due to the ongoing safe management measures in place), in this post, you can read my summary of CEO Mr Tham Kuo Wei’s presentation, responses to questions submitted by the attendees of the meeting, as well as results of the 3 resolutions put to vote during the meeting.
CEO Mr Tham Kuo Wei’s Presentation
Key Financial Results:
- Mr Tham shared that improvements in the REIT’s gross revenue (by 10.2% from S$405.9m in FY2019/20 to S$447.2m in FY2020/,21), net property income (by 10.4% from S$318.1m in FY2019/20 to S$351.0m in FY2020/21) as well as in its amount available for distribution (by 11.3% from S$265.3m in FY2019/20 to S$295.3m in FY2020/21) can be attributed to the consolidation of revenue from the 14 data centres in the United States, full year income stream from 7 Tai Seng Drive, along with stronger contribution from the REIT’s joint ventures.
- In-line with improvements in its financial results, the REIT’s distribution per unit also increased by 2.5% to 12.55 Singapore cents/unit (FY2019/20: 12.24 Singapore cents/unit.)
Strong Balance Sheet:
- As a result of the acquisitions (of the remaining 60% interest in 14 data centres in the United States on 1st September 2020, and the acquisition of 8011 Villa Park Drive, Richmond on 12 March 2021), the REIT’s total assets increased by 23.2% to S$6.4b (FY2019/20: S$5.2b), and this led to its net asset value recording a 2.5% improvement to S$1.66 (FY2019/20: S$1.62.)
- However, the REIT’s total borrowings outstanding, as a result of the acquisitions, climbed to S$2,245.2m (FY2019/20: S$1,434.1m)
- Aggregate leverage was at 40.3%, which Mr Tham explained was well within the regulatory limit of 50.0%. He also added that there remains a debt headroom of S$588.0m (assuming an aggregate leverage ratio of 45.0%) for investment growth activities.
- Its debt maturity profile was well-spread out over the coming financial years – particularly, Mr Tham highlighted that only S$368.0m (or 16.4%) of the REIT’s debts will mature in the financial year 2021/22 ahead, and S$125.0m (or 5.0%) of its debts will only mature 7 years from now (in FY2028/29.)
- As far as forex rate risk management is concerned, Mr Tham shared that about 76.8% of the REIT’s total borrowings has been hedged, and 46.3% of the REIT’s United States dollar net income stream for FY2020/21 was hedged into Singapore dollars.
- Mr Tham updated that the average overall portfolio occupancy was very healthy at 92.6% (up from 90.9% in FY2019/20), and that there was a healthy retention rate of 78.9% for its Singapore portfolio (up from 78.3% in FY2019/20.)
- He also shared that the REIT has reclassified data centres as a standalone property segment with effect from 01 April 2020, which accounted for 41.2% (and this was up by 9.6 percentage points compared to the previous financial year) of the portfolio by assets under management.
- The lease expiry of its Singapore portfolio remains stable at 4.0 years as at 31 March 2021 (compared to 4.2 years as at 31 March 2020), with many leases due for renewal many years down the road (30.4% of the REIT’s leases will only expire in FY2026/27 and beyond – contributed by the REIT’s consolidation of the 14 data centres in the United States, where 55.2% of the leases have expiries beyond 5 years.)
- Also, as a result of the consolidation of the 14 data centres in the United States, the percentage of properties sitting on freehold land have increased to 55.9% (from 37.9%.)
Environmental, Social, and Corporate Governance (ESG) Highlights:
- Mr Tham shared that the REIT made its first foray into renewable energy with the completion of installation of solar panels at the rooftops of Serangoon North cluster and K&S Corporate Headquarters.
- Additionally, he updated that the REIT had secured an inaugural S$300.0m sustainability-linked facility, which he opined was a good addition to the REIT’s financial flexibility.
- Finally, the REIT have also made an inaugural submission to GRESB Real Estate Assessment 2021, an ESG benchmark for the real estate sector.
Response to Covid-19:
- Tenants: All of the REIT’s properties in Singapore and North America remained opened during lockdowns, and a pandemic preparedness plan was in place to safeguard the well-being of tenants and visitors; for tenants affected by the pandemic, the REIT extended a total of S$12.7m of rental reliefs.
- Employees: Apart from distributing surgical masks, hand sanitisers, and healthy snack packs to them, a Covid-19 subsidy of $500 was given to all employees worldwide to help them defray additional expenses incurred when working remotely and to recognise the efforts of the frontline employees.
- Investors: Increased investor outreach efforts through virtual meetings, conferences, as well as webinars.
- Community: Apart from donating over 2m disposable medical masks to various frontline agencies, staffs of Mapletree Group contributing their Solidarity Payment of over S$85,000 to support more than 180 employees of tenants and service providers, Mapletree Industrial Trust’s ‘Pack a Bag’ CSR event also raised S$7,350 from employees of the Manager and the Property Manager for 71 beneficiaries from Children’s Wishing Well and Thye Hua Kwan Family Service @ Tanjong Pagar.
Updates on Re-development at 161, 163, and 165 Kallang Way
- The re-development will see the plot ratio increase to 2.5 (from the initial plot ratio of 1.5)
- Constructions of the 2 buildings (at 161 and 163 Kallang Way) has commenced in late November 2020, and Mr Tham updated that works is expected to be completed in the second half of 2022; as for 165 Kallang Way, construction contract has just been awarded in May 2021, with completion in the first half of 2023.
- Additionally, Mr Tham also shared that the REIT have secured a pre-commitment from a global medical device company headquartered in Germany for about 24.4% enlarged gross floor area for a lease term of 15+5+5 years with annual rental escalations.
- Mr Tham shared that even though the overall environment is a little volatile and uncertain, the REIT’s portfolio continues to remains very resilient. He added that rental arrears of more than one month improved from 1.4% of previous 12 months’ gross revenue as at 31 December 2020 to 1.2% as at 31 March 2021.
- As to the REIT’s data centres in North America, Mr Tham expects demand for data centre space to continue to grow, and the expected completion of the proposed US$1.32b acquisition of 29 centres in the United States in the third quarter of financial year 2021/22 should contribute meaningfully to the REIT’s financial performance.
- Moving forward, Mr Tham added that the REIT would like to further increase the number of data centre properties in its portfolio. He also shared that the REIT has a right of first refusal from its Sponsor for the acquisition of its 50% interest in MRODCT, and that it will be a significant pipeline for growth.
Responses by the Management on Questions Raised by AGM Attendees
- Pertaining to a question on whether or not there are plans for the REIT to dispose off its flatted factory properties to become a data centre REIT, Chairman Mr Wong Meng Meng said there are currently no plans to do so. He shared that the REIT’s next milestone is to have 67% of the properties in its portfolio comprising of data centres. On another question about whether or not there is a timeframe for the REIT to achieve this milestone, Mr Wong said there isn’t one at the moment, due to the ongoing Covid-19 pandemic impacting possible opportunities.
- Another unitholder asked if there is any possibility of the REIT co-developing a data centre project with 3rd parties, to which Mr Wong said the REIT is open to the idea. However, there are a range of factors (including financial arrangement) to consider.
- Finally, responding to a question on whether or not there will be further delays to the re-development at 161, 163, and 165 Kallang Way, CEO Mr Tham responded that the completion for the re-development of 161, 163 Kallang Way will be as scheduled (in the second half of 2022). As for 163 Kallang Way, it will be completed slightly later (in the first half of 2023), as construction was only awarded in May.
Results of Resolutions Put to Vote during the AGM
- Resolution #1, which is to receive and adopt the Trustee’s Report, the Manager’s Statement, the Audited Financial Statements of Mapletree Industrial Trust for the financial year ended 31 March 2021 and the Auditor’s Report thereon was passed with 100.0% (or 1,479,462,408) of the votes for, and 0.00% (or 66,600) of the votes against.
- Resolution #2, which is to re-appoint PricewaterhouseCoopers LLP as the Auditor of Mapletree Industrial Trust and to authorise the Manager to fix the Auditor’s renumeration, was passed with 97.62% (or 1,445,430,180) of the votes for, and 2.38% (or 35,285,393) of the votes against.
- Resolution #3, which is to authorise the Manager to issue Units and to make or grant instruments convertible into Unit, was passed with 91.65% (or 1,357,048,247) of the votes for, and 8.35% (123,652,293) of the votes against.
Though the meeting is a short one, but personally, I felt everything was covered. Also, in terms of the REIT’s outlook ahead, I am excited by the prospects of the REIT having a milestone to have two-thirds of its property portfolio consisting of data centres – which in my opinion its demand is going to go up as more and more businesses around the world move towards digitalisation of their business operations.
With that, I have come to the end of my summary on Mapletree Industrial Trust’s 11th AGM, and I hope you’ve found the contents within useful.
Disclaimer: At the time of writing, I am a unitholder of Mapletree Industrial Trust.
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