Mapletree Industrial Trust (SGX:ME8U) is the second Mapletree REIT to release its financial results for the second quarter, and also for the first half of the financial year 2022/23 ended 30 September 2022 after market hours yesterday (26 October 2022) – the first was Mapletree Logistics Trust the day before (on 25 October 2022, and you can read my review about it here), with the third Mapletree REIT in Mapletree Pan Asia Commercial Trust releasing its results after market hours later in the evening (27 October 2022.)

For those who are unfamiliar with the REIT, here’s a brief introduction about it – listed since 21 October 2010, and subsequently included into Singapore’s benchmark Straits Times Index from 22 June 2020, Mapletree Industrial Trust’s property portfolio comprises of buildings (hi-tech buildings, business park buildings, flatted factories, stack-up/ramp-up buildings, and light industrial buildings) used for industrial purposes, as well as data centres. At the time of writing, the REIT has 85 properties in Singapore, and 56 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$8.9bn.

In this post, you’ll find my review of the blue-chip REIT’s latest set of financial results, portfolio occupancy and debt profile, along with distribution payout to its unitholders for the current period under review.

Let’s begin:

Financial Performance (Q2 FY2021/22 vs. Q2 FY2022/23, and 1H FY2021/22 vs. 1H FY2022/23)

In this section, let us take a look at the REIT’s financial performance first on a quarter-on-quarter (i.e. Q2 FY2021/22 vs. Q2 FY2022/23), and then a year-on-year (i.e. 1H FY2021/22 vs. 1H FY2022/23) basis:

Q2 FY2021/22 vs. Q2 FY2022/23:

Q2 FY2021/22Q2 FY2022/23% Variance
Gross Revenue
(S$’mil)		$155.6m$175.5m+12.8%
Property Operating
Expenses (S$’mil)		$35.2m$45.2m+28.2%
Net Property
Income (S$’mil)		$120.3m$130.3m+8.3%
Distributable Income
to Unitholders
(S$’mil)		$88.4m$89.0m+0.7%

My Observations: On the whole, I must say that its results on a quarter-on-quarter (q-o-q) basis is a stable one – with the 12.8% increase in its gross revenue due to the contribution from 29 data centres located in the United States of America acquired in July 2021. However, as a result of a 28.2% jump in its property operating expenses, its net property income went up by a smaller percentage (at 8.3%.)

Finally, as a result of higher borrowing costs (due to higher interest rates environment and additional interest arising from the acquisition of the 29 data centres in the United States), and higher manager’s management fees (due to a better portfolio performance and increase in the value of assets under management), its distribution per unit only inched up by 0.7% to S$89.0m.

1H FY2021/22 vs. 1H FY2022/23:

1H FY2021/221H FY2022/23% Variance
Gross Revenue
(S$’mil)		$283.6m$343.3m+21.0%
Property Operating
Expenses (S$’mil)		$58.6m$83.1m+41.8%
Net Property
Income (S$’mil)		$225.0m$260.2m+15.6%
Distributable Income
to Unitholders
(S$’mil)		$171.1m$181.1m+5.9%

My Observations: On a half-yearly basis, the blue-chip industrial REIT’s result is still considered pretty decent – with both its gross revenue and net property income recording double-digit percentage growths.

Particularly, the 21.0% climb in its gross revenue can be attributed to contribution from the REIT’s acquisition of the 29 data centres in the United States in July 2021. However, with its property operating expenses jumping by 41.8% in the same time period, its net property income went up by a smaller percentage (at 15.6%.)

As far as its distributable income to unitholders for the first half of the current financial year is concerned, due to higher borrowing costs and manager’s management fees, it only went up by 5.9% compared to the same time period last year.

Portfolio Occupancy Profile (Q1 FY2022/23 vs. Q2 FY2022/23)

When it comes to reviewing a REIT’s portfolio occupancy profile, my preference is to always take the stats recorded for the current quarter under review and compare them against that recorded in the previous quarter to find out whether or not they have continued to remain resilient, or showing signs of weakness.

In the table below, you’ll find Mapletree Industrial Trust’s portfolio occupancy profile for the current quarter under review (i.e. Q2 FY2022/23 ended 30 September 2022) compared against the previous quarter 3 months ago (i.e. Q1 FY2022/23 ended 30 June 2022):

Q1 FY2022/23Q2 FY2022/23
Portfolio Occupancy
(%)		95.3%95.6%
Portfolio WALE (by
Gross Rental Income – years)		4.1 years4.0 years

My Observations: Comparing the REIT’s portfolio occupancy profile recorded for the current quarter under review against the previous quarter 3 months ago, it has remained very resilient (in my opinion) – the 0.3 percentage point (pp) improvement in its portfolio occupancy can be attributed to slight improvements in its business park buildings (up from 85.7% in Q1 FY2022/23 to 86.3% in Q2 FY2022/23), flatted factories (up from 95.5% in Q1 FY2022/23 to 96.7% in Q2 FY2022/23), stack-up/ramp-up buildings (up from 97.7% in Q1 FY2022/23 to 98.3% in Q2 FY2022/23), as well as in its light industrial buildings (up from 92.6% in Q1 FY2022/23 to 97.5% in Q2 FY2022/23 – this building type saw the highest improvement in terms of its occupancy rate compared to the previous quarter.)

On its lease expiry profile, I must say they are quite evenly staggered out – with 6.8% of the leases expiring in the 2nd half of the current financial year 2022/23, 17.9% of the leases expiring in the coming financial year 2023/24, 16.2% of the leases expiring in FY2024/25, 16.4% of the leases expiring in FY2025/26, and the remaining 42.7% of the leases expiring only in FY2026/27 and beyond.

In terms of gross revenue contributions by individual tenants, no single tenant contributes more than 6.0% towards its total gross revenue, with the top 10 tenants contributing 29.7% towards the REIT’s total gross revenue.

Debt Profile (Q1 FY2022/23 vs. Q2 FY2022/23)

Similar to how I have reviewed the REIT’s portfolio occupancy profile in the previous section, I will also be reviewing its debt profile by taking the stats reported in the current quarter under review and compare them against the stats reported in the previous quarter to find out whether it has continued to remain healthy (this becomes increasingly important in a rising interest rate environment like the one we are in right now):

Q1 FY2022/23Q2 FY2022/23
Aggregate Leverage
(%)		38.4%37.8%
Interest Coverage
Ratio (times)		6.2x5.8x
Average Term to
Debt Maturity (years)		3.7 years3.5 years
Average Cost of
Debt (%)		2.5%2.9%
% of Borrowings Hedged
to Fixed Rates (%)		72.3%74.2%

My Observations: Apart from its aggregate leverage improving by 0.6 percentage point (pp) to 37.8% (due to the redemption of the S$45m 3.65% 10-year medium term notes with cash, which matured on 7 September 2022), and a slightly higher percentage of borrowings hedged at fixed rates (at 74.2%, but even so, I felt that its still a little bit on the low-side, considering the high interest rate environment we are in currently), its debt profile have weakened slightly compared to the previous quarter.

Among the statistics, I note that its average cost of debt have jumped by 0.4pp to 2.9% due to higher benchmark reference rates. Coupled with the fact that the REIT still have 11.9% (or S$351.1m) of borrowings due for refinancing in the second half of the financial year, the rising interest rates will ‘eat’ into the REIT’s distribution payouts (every 100bps of interest rate hike will have a 1.5% impact on its distribution per unit of 3.36 cents declared in Q2 FY2022/23) and investors will have to be prepared for slightly lower distribution payout amount in the coming quarters ahead (personal view here.)

Finally, on its debt maturity profile in the coming financial years ahead, its still considered well-spread out – with 6.0% (or S$175.0) of borrowings expiring in FY2023/24, 5.1% (or S$150.0m) of borrowing expiring in FY2024/25, and the remaining 77.0% (or S$2,271.0m) of its borrowings expiring only in FY2025/26 and beyond.

Distribution Payout to Unitholders

In case you’re not already aware, Mapletree Industrial Trust is one of the few Singapore-listed REITs that declares a distribution payout to its unitholders on a quarterly basis.

For the current quarter under review (i.e. Q2 FY2022/23), the management have declared a distribution payout of 3.36 cents/unit – a decline from the distribution payout of 3.47 cents/unit declared in the same time period last year (i.e. Q2 FY2021/22), due to higher financing costs, along with a higher manger’s management fees.

Also, just like in the previous quarters, the ‘distribution reinvestment plan’ (DRP) will be applied, where you can choose between receiving your distribution in cash (which is the default option), units of the REIT (if your unitholding is in your CDP account, you should receive a form in your letterbox in due course for you to indicate your choice; if your unitholding is in a custodian account, then you should receive a message from your brokerage for you to indicate your choice), or a mixture of both (you will need to specify the number of unitholdings to receive cash, as well as additional units of the REIT.)

If you are a unitholder of the REIT, do take note of the following dates on its distribution payout/crediting of REITs (if you opt to receive additional units of the REIT):

Ex-Date: 01 November 2022
Record Date: 02 November 2022
Payout/Crediting of Units Date: 12 December 2022

On a year-on-year basis, together with a payout of 3.49 cents/unit in the first quarter, this amounts to 6.85 cents/unit – which is only a slight 0.4% increase from the payout of 6.82 cents/unit declared in the same time period last year (i.e. 1H FY2021/22.)

Management’s Comments & Outlook

CEO Mr Tham Kuo Wei’s Comments on the REIT’s Latest Results:

“While we have achieved steady improvement in portfolio performance, our financial performance has been affected by headwinds from higher property operating expenses and borrowing costs. Such cost pressures arising from rising energy prices and interest rates amid a deteriorating macroeconomic environment are expected to continue for the coming quarters. We plan to release the tax-exempt income of S$6.6 million over the next three quarters to mitigate the impact of rising operating and borrowing costs. Our focus remains on prudent cost management while exploring opportunities to improve the portfolio quality and operating performance.”

Outlook:

“The global economy is experiencing challenges across multiple fronts. Inflation higher than seen in several decades, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is projected to slow to 3.2% in 2022 and 2.7% in 2023. Numerous risks, such as geopolitical fragmentation, inflation, and debt distress induced by tighter global financial conditions, could cause the global growth forecast to decline further.

Against the backdrop of an uncertain global outlook, the increasing concern of an oncoming recession has dampened business confidence. At the same time, increasing property operating expenses and borrowing costs continue to exert pressure on distributions. The Manager will adopt cost-mitigating measures while focusing on tenant retention to maintain a stable portfolio occupancy.”

Closing Thoughts

The 3.2% q-o-q decline in its distribution payout came as a surprise to most retail investors – but looking at the current high interest rate environment, I think this is something we will need to come to terms with. And looking ahead, with another 11.0% of borrowings due for refinancing in the second half of the current financial year, coupled with a steadily rising interest rate on borrowings, I’m of the opinion that its distribution payout for the third and fourth quarter will continue to record q-o-q declines.

Another thing to note will be the REIT’s financial results – where retail investors cannot expect the REIT to continue its strong double-digit percentage growths without much acquisition activities (and given the current interest rate environment, I am of the opinion that such activities will be very much reduced in the coming quarters.) Hence, improvements in the REIT’s results will mostly come from built-in rental escalations from existing leases, and also from new leases and/or lease renewals (provided if the REIT is able to secure at favourable conditions.)

Despite of that, I think retail investors can take comfort in the REIT’s portfolio occupancy, where, at 95.6% as at 30 September 2022, is a very resilient one – what’s more, apart from its business park buildings, the occupancy rates for the other property types are all above 90.0%. Coupled with a well-staggered out lease expiry profile, it can provide some form of income ‘security.’

No doubt there are headwinds ahead for the REIT, but this is not something faced by Mapletree Industrial Trust alone, but by all the Singapore-listed REITs as well. And as an investor of the blue-chip industrial REIT, I’m confident of the management’s ability to ride through the current headwinds, and emerge stronger at the end of it. Hence, I will continue to remain invested in the REIT.

That said, all the opinions above are purely mine, which I am sharing for educational purposes only. They do not constitute any buy or sell calls for the REIt. As always, please do your own due diligence before you make any investment decisions.

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Disclaimer: At the time of writing, I am a unitholder of Mapletree Industrial Trust.

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