Mapletree reveals stellar earnings despite tenant exits

Big business is a goner.

This quarter, Mapletree Industrial Trust (MINT) lost Credit Suisse and Lucasfilm, two of its anchor tenants at The Signature located in eastern Changi Business Park (CBP). Since then, MINT has had difficulty finding tenants to fill up the gaps.

A report by Barclays shows that MINT’s strong 11-20% rent reversions across all property segments are expected to moderate as achieved rents near market levels, and that demand at The Signature remains tepid with occupancy still around 39%.

According to Barclays, MINT believes the low occupancy is not due to prices but to the lack of demand for big business park space. Management also pointed out that there has been abundant new supply at CBP but with no new demand drivers.

Here’s more from Barclays:

MINT’s flatted factories segment saw a dip in occupancy rates from 95.1% to 94.2% in 1QFY15 due to the progressive relocation of tenants from the Telok Blangah Cluster (to be redeveloped). Occupancy at its Telok Blangah cluster has dipped to 76% from 96%
previously. Excluding this cluster, the same-store flatted factories would have maintained at c95% occupancy level.

Jurong Town Council (JTC) recently revised its subletting policy to increase the amount of space in a building that must be occupied by anchor tenants from 50% to 70%. This revised policy will take effect from 1 October 2014 and a grace period is given until 31 Dec 2017 for compliance. While management believes it is still too early to comment, based on what management understands, it believes the ruling affects industrial properties that are direct land allocation which pays land rent to JTC. MINT’s management therefore estimates that 7 of its properties (c6% of its portfolio) that are the light industrial and hi-tech buildings that were on sale and leaseback, comprising about 6% of its portfolio, could be affected by this rule. However, there is a grace period of up to 31 Dec 2017 to comply. While we think this ruling could be a positive for MINT, which rents space to small occupiers in its flatted factories and multi-tenanted buildings, MINT’s management is cautious that this could also mean acquisitions would be more difficult as industrialists will now be less willing to commit to sale & leaseback deals.