Along with Mapletree Logistics Trust (you can read my summary of the REIT’s annual report here), Mapletree Industrial Trust (SGX:ME8U) also released its annual report for the financial year 2021/22, along with notice of its upcoming annual general meeting (AGM) yesterday (27 June 2022) morning.
For those of you who are unfamiliar with the REIT, a brief introduction – it is a constituent of Singapore’s benchmark Straits Times Index (STI), and at the time of writing, its portfolio comprises a total of 86 properties in Singapore, and 57 properties in North America (including 13 data centres held through the joint venture with Mapletree Investments Pte Ltd), and a total asset under management of S$8.8bn.
In this post, you’ll find my summary of the most important points to take note of from the blue-chip industrial REIT’s latest annual report, details about its upcoming AGM, and also my thoughts as a unitholder:
Summary of Mapletree Industrial Trust’s Annual Report
Diversification into Key Markets in the United States:
- On 22 July 2021, the REIT diversified its footprint across key markets in the United States with the acquisition of 29 data centres strategically located across 18 states at a total cost of US$1.32bn. Following the acquisition, data centres comprises about 54.1% of the REIT’s portfolio.
- The newly acquired data centres have an average occupancy rate of 87.5%, and are leased to 32 tenants (including Fortune Global 500 corporations, NYSE-listed, and NASDAQ-listed companies, as well as multinational companies with investment grade ratings) on a triple net basis with annual rental escalations from 1.5% and 3.0%.
- This acquisition allowed the REIT to gain exposure to new established markets such as Chicago, Los Angeles, and Houston. Apart from that, it also enhanced the sustainability of the REIT’s returns to unitholders with increased freehold land component and long leases with embedded rental growth, along with capturing opportunities from structural trends accelerated by the pandemic such as cloud computing and e-commerce.
FY2021/22 Financial Performance Highlights:
- Gross revenue, as well as net property income saw 36.4% (to S$610.1m, from S$447.2m in FY2020/21) and 34.5% (to S$472.0m, from S$351.0m in FY2020/21) year-on-year (y-o-y) growth, underpinned by contributions from the 29 data centres in the United States (details in the previous section), 14 data centres in the United States previously held under Mapletree Redwood Data Centre Trust, and 8011 Villa Park Drive, Richmond, Virginia (acquired in March 2021.)
- Correspondingly, the distributable income to unitholders also climbed 18.8% to S$350.9m (FY2020/21: S$295.3m), with the distribution per unit increasing by 10.0% to 13.80 Singapore cents (FY2020/21: 12.55 Singapore cents.)
Balance Sheet Updates:
- In FY2021/22, the REIT have completed an S$823.3m equity fund raising exercise (comprising approximately S$512.9m from private placement and S$310.4m from preferential offering) to partially finance the acquisition of 29 data centres, which garnered robust support from a broad spectrum of investors.
- They have also diversified their funding sources with the issuance of S$300.0m of perpetual securities (in May 2021) and the resumption of the distribution reinvestment plan (DRP) – the former was oversubscribed with price tightening from 3.15% from the initial guidance of 3.375%, and the latter receiving a take-up of 42.5% for its Q3 FY2021/22 distribution.
- As at 31 March 2022 (i.e. end of FY2021/22), its aggregate leverage was at 38.4% (well-within the revised leverage limit of 50.0% imposed by the Monetary Authority of Singapore), with a healthy interest coverage ratio of 5.7x, and an average borrowing cost of 2.5%.
- About 70.5% of the REIT’s total borrowings had been hedged into fixed rates, and 60.1% of its FY2021/22 foreign currency net income stream had been hedged into Singapore dollars. Moving forward, they will continue to adopt appropriate hedging strategies to manage the impact of interest rate and foreign currency fluctuations on distributions.
Portfolio Performance & Updates:
- Average overall portfolio occupancy increased from 92.6% FY2020/21 to 93.9% in FY2021/22, which can be attributed to the improvement in the average Singapore portfolio occupancy rate from 91.7% in FY2020/21 to 93.8% in FY2021/22, due to higher occupancies registered at its Hi-Tech Buildings, Flatted Factories, and Stack-up/Ramp-up Buildings.
- Tenant retention rate of the REIT’s Singapore portfolio have also increased from 78.9% in FY2020/21 to 82.5% in FY2021/22. The management remains focused on tenant retention and forward lease renewals to maintain a stable portfolio occupancy.
- The weighted average lease to expiry for the overall portfolio (by gross rental income) was 4.1 years, a slight improvement from 4.0 years a year ago – primarily due to the long leases of the newly acquired 29 data centres in the United States. Lease expiries remained well-distributed, with 34.9% of the leases due for expiry only in FY2027/28 and beyond.
- The REIT’s acquisition of the 29 data centres in the United States also diversified its tenant base and reduced its contribution from its top 10 tenants from 33.3% in FY2020/21 to 29.5% in FY2021/22.
- As far as updates about individual properties in its portfolio is concerned, in December 2021, the REIT announced the divestment of 19 Changi South Street 1 for S$13.0m, in-line with their strategy to divest non-core assets to recycle the capital for better investment properties.
- Another update to note is the redevelopment of the Kolam Ayer 2 Cluster – it remains on track for full completion in 1H FY2022/23. With an enlarged gross floor area of about 865,600 sq ft, the new high-tech industrial precinct will be attractive to companies seeking build-to-suit solutions and high-quality industrial space at the city fringe.
- In FY2021/22, the REIT have completed the re-assessment of its material matters and sought the views of external stakeholders for the first time. This is in addition to the introduction of the Board Diversity Policy, with targets to improve board diversity.
- As part of their efforts to build a climate resilient portfolio, the REIT will be stepping up the adoption of renewable energy by progressively installing solar panels at their Flatted Factory clusters.
- They will also be collaborating with their tenants on the sustainability journey through the introduction of sustainability clauses for new leases in Hi-Tech Buildings and Business Park Buildings.
- The fallout from the Russia-Ukraine war, and China’s strict “Zero Covid” strategy have compounded inflationary pressure and weighted on an already fragile global recovery. That said, the REIT’s management remains mindful of the risks on margins from rising energy prices and higher interest costs, and at the same time, proactively taking steps to manage their impact on the portfolio.
- Despite the headwinds, the REIT’s management remains confident that their proactive portfolio rebalancing efforts will stand them in a good stead to navigate the challenging course ahead, and to emerge from this crisis stronger than ever.
- Finally, on the acquisition front, the right of first refusal from the Sponsor for the acquisition of its 50.0% interest in Mapletree Rosewood Data Centre Trust remains a significant acquisition pipeline.
Details of Mapletree Industrial Trust’s Upcoming AGM
The REIT will be holding its 12th AGM on Tuesday, 19 July 2022, at 2.30pm. Unitholders have the option to attend the meeting in-person (at 20 Pasir Panjang Road, Mapletree Business City, Town Hall – Auditorium, Singapore 117439), or virtually.
You can indicate your choice when you sign up via the following link (do take note that the deadline to do so will be on Saturday, 16 July 2022, at 2.30pm):
In view of the resurgence in the number of Covid cases in the community, of late I will be attending the meeting virtually – and for the benefit of those who aren’t able to attend, I will be publishing a summary of it in due course.
What’s not to like about the REIT – its performance (resilient financial performance and portfolio occupancy profile, along with a healthy balance sheet) over the years makes it one of the most resilient among the Singapore-listed REITs, and one I will stay invested for the long-term.
One of the major concerns which fellow investors may have is the impact that the rising interest rates may have on the REIT – with a bulk of its total borrowings on fixed rates, my opinion is that any negative impact is minimised.
With that, I have come to the end of my summary of Mapletree Industrial Trust’s latest FY2021/22 annual report. Do take note that the contents above (especially my personal opinions) meant solely for educational purposes only, and they do not represent any buy or sell calls for the REIT’s units. As always, please do your own due diligence before you make any investment decisions.
Disclaimer: At the time of writing, I am a unitholder of Mapletree Industrial Trust.
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