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Mapletree Industrial Trust’s Latest Earnings: Nice Growth Seen, But Are Headwinds Ahead?

Yesterday evening, Mapletree Industrial Trust (SGX: ME8U) announced its fiscal first-quarter results for the quarter ended 30 June 2015.

Mapletree Industrial Trust is an aptly-named estate investment trust (REIT) which invests mainly in industrial real estate. Currently, it has 84 properties (that are all located in Singapore) in its portfolio and they are valued at around S$3.4 billion in all.

Financial highlights

For the reporting quarter, gross revenue grew 4.1% year-on-year to S$81.6 million. This was on the back of higher occupancies achieved by almost all of its property segments, higher rental rates achieved across all property segments, and contributions from the build-to-suit project for Equinix Singapore which received its Temporary Occupation Permit earlier this year.

Due to lower property expenses, net property income increased by 6.2% to S$60.2 million. Moving further down the financial statement, unitholders will be happy to note that Mapletree Industrial Trust’s distributions per unit (DPU) for the quarter went up by 8.8% from 2.51 Singapore cents a year ago to 2.73 Singapore cents in the reporting quarter.

Here’re some details about the REIT’s balance sheet:

Mapletree Industrial Trust's balance sheet details (22 July 2015)

Source: Mapletree Industrial Trust’s earnings presentation

From the table above, it can be seen that there have been some improvements to the REIT’s balance sheet as compared to the previous quarter three months ago: Mapletree Industrial Trust has reduced its debt and leverage ratio, kept its funding costs steady, and also hiked its interest coverage ratio.

The REIT’s net asset value per unit for the quarter clocked in at S$1.32, up 10% from a year ago.

Operational highlights and a future outlook

Mapletree Industrial Trust’s average portfolio occupancy had seen some solid growth on both a sequential as well as year-over-year basis. To that point, the REIT’s occupancy level came in at 93.5% for the reporting quarter, up from 90.2% in the previous quarter and 90.7% from a year ago.

That’s not the only good news. Mapletree Industrial Trust also saw its average rental rate grow from S$1.77 per square feet per month a year ago to S$1.86. The reporting quarter is also the seventh consecutive quarter in which Mapletree Industrial Trust had experienced sequential hikes in its rental rates.

Meanwhile, the REIT also ended the quarter with a very diverse tenant base (this is a good thing as it reduces concentration risk) with its top-10 tenants contributing just 17% of its total gross revenue.

We’ve seen mostly good things coming from Mapletree Industrial Trust in the reporting quarter, but there’s something investors have to be mindful of in the future. Looking ahead, overall rents for multi-user industrial developments in Singapore are expected to dip further in the second half of 2015 after having declined from S$1.95 psf/month in the first quarter of 2015 to S$1.90 psf/month in the second quarter.

That being said, rentals for “business parks and higher specification buildings are expected to increase due to limited new supply” and this may help provide a ballast to the weak multi-user industrial real estate market. In the second quarter of 2015, average rental rates for business park spaces in Singapore had increased by 4.3% on a quarter-on-quarter basis.

Mapletree Industrial Trust closed at S$1.56 on Tuesday. At that price, it’s trading at 1.2 times its latest net asset value and has a trailing-12-months distribution yield of 6.8%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.