Land bank redevelopment will aid MIT's net asset value: analyst

It will increase portfolio GFA and drive medium-term growth in distributions.

Mapletree Industrial Trust (MIT) is projected to show a “surprise” boost on the upside in terms of net asset values (NAV) and acquisitions in the medium term, according to a note by DBS Group Research.

The redevelopment of its “land bank” of older flatted factories like the Kolam Ayer cluster should help to increase portfolio gross floor area (GFA) and drive medium-term growth in distributions and NAV. These are expected to continue in keeping valuations at a premium.

In its FY2020 results, MIT’s net property income jumped 10.5% YoY to $318.06m from $287.77m in FY2019. Gross revenue similarly rose 7.9% YoY to $405.86m on the back of higher revenue contributions from 18 Tai Seng, 30A Kallang Place, 7 Tai Seng Drive and Mapletree Sunview 1, but was countered by lower revenue from the flatted factories segment.

DBS noted that its flatted factories saw a slight dip to 86.2% (vs 87.5% a quarter ago) mainly due to progressive relocation of tenants at Kolam Ayer cluster, as the redevelopment of the site is expected to commence in H2 of 2020.

“Valuations on a like-for-like basis increased marginally for the SG portfolio mainly due to higher valuations for its Hi-specification properties, business parks and stack-up/ramp-up factories offset by a slight decline in values for its flatted factories, which we reckon is due to the shorter land tenures. NAV per share increased to $1.62 as a result,” stated Derek Tan, analyst at DBS Group Research.

Tan added that its balance sheet remains strong with a weighted average debt tenure of 4.7 years with interest cost stable at 2.9% (down 10bps YoY). Approximately 73.4% of its interest cost has been hedged into fixed rates.

Furthermore, MIT’s portfolio occupancy rates remained stable at 91.5% (vs 90.9% in Q3 FY2020) with retention rate high at c.78% for the quarter. Tan said they observed an overall improvement in occupancy rates in Singapore (90.7% in Q4 FY2020) with improvement across most asset classes. HiTech properties hit an occupancy rate of 98.8% (vs 98.4% in Q3 FY2020); business parks at 86.1% (vs 85.1% in Q3 FY2020), led by occupancy rates at The Strategy building; stack-ups saw its occupancy rate improve to 94% from 90.4%; whilst light industrial buildings remained stable at 80%.

However, MIT’s rental reversionary trends may turn down in FY2021 given the expected economic downturn. “The manufacturing sector is expected to be impacted somewhat and MIT, being one of the largest landlords in Singapore, will likely be affected,” Tan said.

DBS expects MIT’s manager to manage occupancy and forego rental growth in FY2021 in order to defend cash flows going into the recession.

“Limiting downside risk is a long WALE of 3.4 years for its Singapore portfolio, with c.17.7% of leases up for renewal in FY21F. The full year contribution from the acquisition of its US data-center portfolio will also provide a buffer against a lower YoY performance,” Tan stated.