Following Mapletree Logistics Trust (where the REIT conducted its 13th Annual General Meeting, or AGM for short, yesterday afternoon, and you can read a summary about it here), the 2nd Mapletree REIT in Mapletree Industrial Trust (SGX:ME8U) held its 12th AGM earlier this afternoon.
Just like the AGM conducted by Mapletree Logistics Trust yesterday, unitholders have the option to attend the meeting either in-person or virtually – I have opted for the latter taking into consideration the rising number of Covid cases in the community in recent weeks.
For the benefit of those who aren’t able to attend the meeting, in this post, you’ll read about a summary of the presentation by CEO Mr Tham Kuo Wei and CFO Ms Lily Ler, responses by the management to some of the relevant questions posed by fellow AGM attendees (attending physically, or joining the meeting virtually), as well as results of the 3 resolutions put to vote during the meeting.
Presentation by CEO Mr Tham Kuo Wei and CFO Ms Lily Ler
Key Highlights of FY2021/22:
- Distributable income climbed 18.8% on a year-on-year (y-o-y) basis to S$350.9m, and this translates to a distribution per unit (DPU) growth of 10.0% to 13.80 cents.
- Its acquisition of 29 data centres in the United States (completed on 22 July 2021) at US$1.32bn was the REIT’s biggest to date – to help fund the transaction, the REIT raised a total of S$823m through private placement and preferential offering.
- In the financial year, the REIT also issued its inaugural S$300.0m perpetual securities, at a coupon rate of 3.15%, and uncallable for 5 years – proceeds were then used to pay off debt and reduce its aggregate leverage.
- The REIT also reported a healthy take-up rate of 42.5% in its distribution reinvestment plan in its Q3 FY2021/22 distribution – with proceeds being used to fund its redevelopment project in Kallang Way.
Key ESG Highlights:
- Embarked on its inaugural climate risk assessment.
- The REIT will continue its work on developing the “Net Zero by 2050” roadmap together with its Sponsor.
Key Financial Highlights:
- The growth in its gross revenue, as well as in its net property income (by 36.4% to S$610.1m and by 34.5% to S$472.0m respectively) was due to better results from its Singapore portfolio, contributions from the newly acquired 29 data centres in the United States, and also the 14 data centres in the United States previously held under Mapletree Redwood Data Centre Trust and 8011 Villa Park Drive, Richmond, Virginia.
Balance Sheet Updates:
- Net assets grew by 27.8% on a y-o-y basis to close to S$5.0bn primarily due to the contribution from the 29 data centres in the United States, along with revaluation gains from the North American portfolio due to compression of cap rates.
- Total borrowings went up to S$2,904.1m (FY2020/21: S$2,245.2m) due to additional debt incurred to fund the new acquisitions.
- Aggregate leverage, as at 31 March 2022 remains healthy at 38.4% (based on this rate, there still remains a debt headroom of about S$592.0m for investment growth opportunities based on an aggregate leverage cap at 45.0%), with weighted average tenor of debt at 3.8 years, average borrowing cost at a low of 2.5% (which can be attributed to the low interest rate environment over the past 2 years), and an interest coverage ratio of 6.4x.
- For the coming financial year 2022/23, 13.3% of its borrowings will be maturing, which Ms Ler updated that negotiations are currently underway to refinance them, and there are available credit facilities to do so. Hence, the risk is quite mitigated.
- Even though 70.5% of the REIT’s borrowings are hedged at fixed rates, Ms Ler acknowledged concerns unitholders have on how the REIT will be managing risks on that front (given the recent and upcoming interest rate hikes.) She shared that the REIT have executed new hedges, as well as extended some of them. Also, ideally, the REIT would like to hedge 70-80% of its borrowings at fixed rates – the reason why it was not set at 100% was because there would be no room for the REIT to manoeuvre if it was set at such (and it will put itself in a disadvantaged situation if the interest rate were to start coming down in the near future; also, as the hedges are at higher rates currently, any move to hedge all its debts to fixed rates will mean an immediate impact to the REIT’s distribution per unit – where it will be lowered by 0.14% per annum for every 0.5 basis point increase in interest rates.)
- Finally, 60.1% of the REIT’s FY2021/22 US dollar-denominated net income was hedged into Singapore Dollars.
Portfolio Occupancy Overview:
- Overall portfolio occupancy rate continues to remain very strong at 93.9% (compared to 92.6% in FY2020/21), contributed by improvements in the occupancy rate in its Singapore portfolio (up from 91.7% in FY2020/21 to 93.8% in FY2021/22), but offset by a slight drop in its North American portfolio (down from 97.9% in FY2020/21 to 94.2% in FY2021/22 due to slightly lower occupancy rates in the newly acquired data centres.)
- As at 31 March 2022, the Weighted Average Lease Expiry (WALE) for its North American portfolio dipped slightly to 6.1 years (from 6.2 years as at 31 March 2021) due to aggregation of portfolio; for its Singapore portfolio, it also fell slightly to 2.7 years (from 3.1 years as at 31 March 2021) due to time regression of the leases. Despite of that, Mr Tham opined that the overall portfolio WALE, at 4.1 years as at 31 March 2022, still remains very healthy.
- In terms of the REIT’s lease expiry profile, Mr Tham highlighted that they are well-staggered over the years, and that a majority of leases (34.9%) will only be expiring in FY2027/28 and beyond (which is another 6 years plus down the road.)
- The REIT has a large and well-diversified tenant base of 2,266 tenants with 3,293 leases, with the top 10 tenants contributing about 29.5% towards its gross rental income as at 31 March 2022, and no single tenant contributing more than 6.1%.
- On the REIT’s data centres, Mr Tham explained that 60.5% of the data centres in its portfolio are “Powered Shell Data Centres” (where only basic facilities are provided), and 90.2% of the leases are on a Triple-Net basis (where tenants take care of everything; the REIT only need to make sure the tenants pay up their rents on time)
- The REIT’s management will continue to proactively manage risks on margins from rising energy prices and higher interest costs. Mr Tham stressed the need to be nimble and adjust accordingly to reduce any potential negative impacts to the REIT’s portfolio.
- As far as data centres in North America is concerned, Mr Tham said that demand and supply continues to remain strong, with leased data centre supply (by net operational sq ft) and demand (by net utilised sq ft) expected to grow at a compound annual growth rate (CAGR) of 6% and 8% respectively between 2020 and 2026E.
- To wrap up, Mr Tham shared that the REIT still has a right of first refusal from the Sponsor for the acquisition of its 50% interest in Mapletree Rosewood Data Centre Trust (roughly about S$1bn), which will be a significant pipeline for growth.
Responses to Relevant Questions Raised by AGM Attendees
- A unitholder wanted to know that the 10.0% y-o-y increase in its DPU in the financial year under review is a “one-off”, considering the increase was largely attributable to contributions from the newly acquired data centres. In response, Mr Tham said that it is not easy for the REIT to secure acquisition deals of such scale every single year. Furthermore, in the near-term, pressures in margins (due to the various headwinds) will mean that even if similar-scaled transaction can be repeated, it is unlikely that the REIT will be able to record a similar improvement in its DPU.
- Another unitholder noted that the average occupancies of the 3 business park properties are below the overall occupancy rate of the REIT, and wanted to know if there are plans to divest them. To this, Mr Tham said the REIT will continue to nudge up the occupancy rates and margins. At the same time, he is open to redeveloping the properties, or divesting them (if the right offer comes along.)
- On the acquisition of data centres, a unitholder wanted to know if the REIT have plans to diversify out of the United States (currently, all its data centre properties are located in the country). Chairman of the REIT, Mr Wong Meng Meng said that the REIT is always on a look out for suitable opportunities in all geographical locations. However, he added that any potential opportunities will have to satisfy some qualifying criteria for selection, including political stability of the country (which the property is located), whether the location has a good transport system, and also whether the country has a good power provision (which is critical component for data centres.)
- Responding to a question on whether DPU will be impacted if there are no new acquisitions made in the coming financial year 2022/23, Mr Wong reassured the unitholder that while the current economic environment is a challenging one, but the REIT’s management continues to be on a lookout for suitable acquisition opportunities. As to whether distributions will be impacted, Mr Wong was unable to give a certain answer as the situation is dynamic.
Results of the 3 Resolutions Put to Vote during the Meeting
- Resolution #1, which is to receive and adopt the Trustee’s Report, the Manager’s Statement, the Audited Financial Statements of MIT for the financial year ended 31 March 2022 and the Auditor’s Report thereon, was passed with 99.86% of the votes for, and 0.14% of the votes against.
- Resolution #2, which is to re-appoint PricewaterhouseCoopers LLP as the Auditor of MIT and to authorise the Manager to fix the Auditor’s remuneration, was passed with 99.19% of the votes for, and 0.81% of the votes against.
- Resolution #3, which is to authorise the Manager to issue Units and to make or grant instruments convertible into Units, was passed with 92.97% of the votes for, and 7.03% of the votes against.
Disclaimer: At the time of writing, I am a unitholder of Mapletree Industrial Trust.