Following Mapletree Logistics Trust (where it has released its results on Tuesday, and you can check out my review about it here), Mapletree Industrial Trust (SGX:ME8U) is the second of the trio of Mapletree REITs to release its results for the 2nd quarter, as well as for the first half of FY2023/24 ended 30 September after market hours yesterday (25 October). In case you’re wondering, the final Mapletree REIT in Mapletree Pan Asia Commercial Trust will be releasing its Q2 and 1H FY2023/24 results later this evening.

For those who are not familiar with Mapletree Industrial Trust, it invests in income producing properties used for industrial and data centre purposes. At the time of writing, its portfolio comprises 85 properties in Singapore, 1 property in Japan, and 56 properties in North America (including 13 data centres held through the joint venture with Mapletree Investments Pte Ltd) valued at S$9.2 billion.

In this post, you will find my review of the industrial REIT’s latest financial results, portfolio occupancy and debt profile, as well as its distribution payout to unitholders this time round.

Let’s begin…

Financial Results (Q2 FY2022/23 vs. Q2 FY2023/24, and 1H FY2022/23 vs. 1H FY2023/24)

In this section, you will find my review of Mapletree Industrial Trust’s results for the 2nd quarter (i.e., Q2 FY2022/23 vs. Q2 FY2023/24), as well as for the first half of the year (i.e., 1H FY2022/23 vs. 1H FY2023/24):

Q2 FY2022/23 vs. Q2 FY2023/24:

Q2 FY2022/23Q2 FY2023/24% Variance
Gross Revenue
(S$’mil)
$175.5m$174.1m-0.8%
Property Operating
Expenses (S$’mil)
$45.2m$45.6m+0.8%
Net Property
Income (S$’mil)
$130.3m$128.6m-1.4%
Distributable Income
to Unitholders (S$’mil)
$89.0m$94.3m+6.0%

My Observations: Gross revenue edged down by 0.8%, partially due to the weakening of the USD (against the Singapore Dollar) and loss of income from non-renewal of leases. However, this was offset by new leases across its portfolio. Together with property operating expenses inching up by 0.8%, its net property income fell by 1.4%.

The increase in distributable income to unitholders was due to higher distribution declared by joint venture and distribution of compensation received for the compulsory acquisition of part of the land at 2 & 4 Loyang Lane of S$2.1m (which was withheld in Q3 FY2021/22) over 2 quarters from Q2 FY2023/24 (which is the current quarter under review) to Q3 FY2023/24, distribution of net divestment gain of S$4.2m from 65 Tech Park Crescent (the property was divested on 20 July 2017) over 2 quarters from Q2 FY2023/24 (which is the current quarter under review) to Q3 FY2023/24. This was offset by higher interest rates, and additional interest incurred in relation to the REIT’s acquisition of the data centre in Osaka, Japan.

1H FY2022/23 vs. 1H FY2023/24:

1H FY2022/231H FY2023/24% Variance
Gross Revenue
(S$’mil)
$343.3m$344.7m+0.4%
Property Operating
Expenses (S$’mil)
$83.1m$85.3m+2.7%
Net Property
Income (S$’mil)
$260.2m$259.4m-0.3%
Distributable Income
to Unitholders (S$’mil)
$181.1m$184.2m+1.7%

My Observations: As far as the first half of the current financial year (compared to the same time period last year is concerned), Mapletree Industrial Trust’s results were still considered to be stable.

Gross revenue went up slightly (by 0.4%), largely due to contributions from new leases across various clusters. Net property income inched down 0.3% as a result of higher property operating expenses (by 2.7%) as a result of higher property maintenance expenses incurred, and higher property taxes.

Distributable income to unitholders saw a 1.7% increase mainly due to higher distribution declared by joint venture, and higher distribution from compensation received and divestment that was completed in the previous financial years, partially offset by higher borrowing costs (which can be attributed to higher interest rate environment and additional interest incurred in relation to the REIT’s acquisition in a data centre in Osaka, Japan.)

Portfolio Occupancy Profile (Q1 FY2023/24 vs. Q2 FY2023/24)

Apart from its financial results, another area I will focus on whenever I evaluate the results of a REIT is its portfolio occupancy – with my focus on the occupancy rate, where it has to be above 90.0%, and also its lease expiries being well-staggered over the years.

In the table below, you will find a comparison of Mapletree Industrial Trust’s portfolio occupancy profile recorded in the current quarter under review (i.e., Q2 FY2023/24 ended 30 September) against that recorded in the previous quarter 3 months ago (i.e., Q1 FY2023/24 ended 30 June):

Q1 FY2023/24Q2 FY2023/24
Portfolio Occupancy
(%)
93.3%93.2%
Portfolio WALE (by
Gross Rental Income – years)
3.90 years4.20 years

My Observations: Even though portfolio occupancy inched down by 0.1 percentage point (pp) to 93.2% (due to a slight dip in occupancy rates in its hi-tech buildings [down from 85.2% in Q1 FY2023/24 to 84.8% in Q2 FY2023/24], business park buildings [down from 83.5% in Q1 FY2023/24 to 81.2% in Q2 FY2023/24], and light industrial buildings [down from 58.7% in Q1 FY2023/24 to 55.5% in Q2 FY2023/24]), I would say that on the whole, it is still considered stable – where apart from its light industrial buildings (which had an occupancy rate of 55.5% as at Q2 FY2023/24), the other property types have an occupancy of at least 80%.

Lease expiries were also well-staggered out over the years. Apart from the REIT having 7.6% of leases due for renewal in the 2nd half of FY2023/24, it has approximately 15.0% of leases due for renewal every year in the subsequent financial years.

The improvement of portfolio WALE from 3.90 years last quarter to 4.20 years this quarter was due to Osaka Data Centre’s long WALE of 19.1 years as at 30 September 2023.

Top 10 tenants contribute about 30.5% towards the REIT’s gross revenue, with the top tenant (in HP) contributing 5.9%.

Debt Profile (Q1 FY2023/24 vs. Q2 FY2023/24)

In the current high interest rate environment, it becomes all the more important for us retail investors to monitor a company’s debt profile to make sure it continues to remain healthy.

2 areas of focus whenever I look at a REIT’s debt profile include its aggregate leverage (where my preference is towards those that maintains it at under 40.0%), and also the percentage of borrowings hedged at fixed rates (where my preference is towards REITs that have 80% or more of its borrowings hedged at fixed rates, to reduce the impact of high borrowing costs on its distribution payout to unitholders).

Did Mapletree Industrial Trust’s debt profile fulfil this requirement of mine? Let us find out in the table below, where you will find a comparison of the statistics recorded for the current quarter under review (i.e., Q2 FY2023/24 ended 30 September) against that recorded in the previous quarter 3 months ago (i.e., Q1 FY2023/24 ended 30 June):

Q1 FY2023/24Q2 FY2023/24
Aggregate Leverage
(%)
38.2%37.9%
Interest Coverage
Ratio (times)
4.8x4.6x
Average Term to
Debt Maturity (years)
3.7 years3.3 years
Average Cost of
Debt (%)
3.5%3.2%
% of Borrowings Hedged
to Fixed Rates (%)
78.0%79.2%

My Observations: By and large, its debt profile have slightly improved compared to last quarter.

Its aggregate leverage, at 37.9%, is a good distance away from the regulatory limit of 50.0%. Also, there’s a slight improvement on the percentage of borrowings hedged to fixed rates – that said, however, with 20.8% of borrowings unhedged, every 100 bps change in base rates will have a -S$1.3m impact on the amount available for distribution per quarter, and a -0.05 cent (or -1.5%) impact on DPU.

Looking at its debt maturity profile, in the 2nd half of the current FY2023/24, only 3.2% (or S$100.0m) of borrowings will be due for refinancing. In the subsequent financial years (from FY2024/25 till FY2027/28), it has an average of 20.0% of borrowings due for refinancing each year – which I consider to be well-staggered.

Distribution Payout to Unitholders

All 3 Mapletree REITs pay out a distribution to its unitholders once every quarter – which is something I like, and one of the reasons why I am invested in all of them (you can check out all the companies I am invested in here).

In the current quarter under review (i.e., Q2 FY2023/24), a distribution payout of 3.32 cents/unit was declared – a 1.2% decline (due to new units issued pursuant to the distribution reinvestment plan) compared to the payout of 3.36 cents/unit declared in the same time period last year (i.e., Q2 FY2022/23.

Together with its payout of 3.39 cents/unit declared in the 1st quarter of FY2023/24, the industrial REIT’s total distribution payout for the first half of the year amounts to 6.71 cents/unit – again, when we compare against the payout of 6.85 cents/unit declared in the first half of FY2022/23, this represented a 2.0% decline – this was due to an enlarged unit base as a result of the distribution reinvestment plan.

If you are a unitholder of Mapletree Industrial Trust, do take note of the following dates regarding its distribution payout:

Ex-Date: 01 November 2023
Record Date: 02 November 2023
Payout Date: 05 December 2023

Comments and Outlook (from the REIT’s Press Release)

CEO Mr Tham Kuo Wei’s Comments:

“The acquisition of the Osaka Data Centre represents another milestone in our strategy to strengthen the portfolio and diversify our portfolio geographically. We remain focused on prudent capital management and proactive tenant retention while continuing with our portfolio rebalancing efforts through accretive investments and selective divestments of non-core assets.”

Outlook:

Global growth was projected to slow from 3.5% in 2022 to 3.0% in 2023 and to 2.9% in 2024. Numerous risks, such as further global financial stress, persistent inflation and geopolitical tensions, conflict and social unrest could cause the global growth projection to tilt to the downside.

The global recovery would continue to slow down amid widening divergences among regions. Persistence in global inflation could warrant higher-for-longer policy rates, which could in turn trigger a correction in financial markets and capital flow volatility. Rising property operating expenses and increases in borrowing costs from higher benchmark reference rates as well as replacement of expiring interest rate swaps could continue to exert pressure on distributions. The Manager will adopt cost-mitigating measures while focusing on tenant retention to maintain a stable portfolio occupancy level as well as prudent capital management to balance the risks and costs in the elevated interest rate environment.

Closing Thoughts

A slightly weaker set of financial results for the 2nd quarter (where the gross revenue inched down due to a weaker USD, and loss of income from the non-renewal of leases), but for the 1st half of FY2023/24, it is still stable – even though growth in terms of its gross revenue was muted.

While portfolio occupancy saw a slight dip compared to the previous quarter (i.e., Q2 FY2023/24), but at 93.2%, it is still considered resilient. Lease expiries are also well-staggered out.

Finally, on its debt profile, it continues to remain healthy, with its aggregate leverage at 37.9% a good distance away from the regulatory limit of 50.0%. In terms of borrowings due to mature in the coming years, it is also well-staggered out (with the exception of the 2nd half of the current financial year where there are only 3.2% of borrowings due for refinancing, in the subsequent financial years, about 20% of borrowings are due for refinancing each year.)

With that, I have come to the end of my review of Mapletree Industrial Trust’s latest Q2 and 1H FY2023/24 results. Do note that all opinions above are purely mine which I’m sharing for educational purposes only. They do not constitute any buy or sell calls for the REIT’s units. 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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