Latest Earnings From Mapletree Industrial Trust: Steady Growth Seen, But Challenges Lie Ahead

Yesterday evening, Mapletree Industrial Trust (SGX: ME8U) announced its fiscal third-quarter results for the quarter ended 31 December 2015.

Mapletree Industrial Trust is an aptly-named real 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 collectively valued at around S$3.4 billion (as of 31 March 2015).

Financial highlights

For the reporting quarter, gross revenue grew 6.6% year-on-year to S$83.25 million while net property income rose in tandem by 6.7% to S$61.88 million.

The growth can be attributed to contributions from the completed build-to-suit (BTS) data centre project for Equinix at 26A Ayer Rajah Crescent as well as higher occupancies and rents in some of the REIT’s properties.

Moving further down the income statement, unitholders of Mapletree Industrial Trust are likely happy to note that the REIT’s distribution per unit (DPU) for the reporting quarter had increased by 5.6% from 2.67 Singapore cents a year ago to 2.82 Singapore cents.

Coming to the balance sheet,  the trust’s aggregate leverage ratio has decreased from 32.8% a year ago to 29.3% as of 31 December 2015. Another positive development is that the trust’s interest coverage had increased from 8.1 times to 8.3.

There were some slight negatives in relation to the balance sheet though. The REIT’s percentage of debt with fixed rates had slipped ever so slightly from 86% to 85.6%. Meanwhile, the average cost of debt had crawled higher from 2.2% at end-2014 to 2.4%.

Investors may want to take note that S$461.7 million in borrowings, representing over 44% of the REIT’s total debt, will mature over FY16/17 (fiscal year ending 31 March 2017) to FY18/19.

If there’s an environment of rising interest rates, it may get tougher for Mapletree Industrial Trust to refinance its loans at competitive rates (that’s something that the REIT had commented on as well; more on this later). On a brighter note, there is no refinancing requirement left for the current fiscal year (FY15/16).

Mapletree Industrial Trust’s net asset value per unit for the reporting quarter clocked in at S$1.33, up 10% from a year ago.

Operational highlights and a future outlook

On the operational front, the REIT’s average portfolio occupancy for the reporting quarter had stepped up to 94.7% from 90.8% a year ago.

Mapletree Industrial Trust also seems to be doing a good job with its leases. During the quarter, it had achieved positive rental revisions in renewed leases for all four of its property classes, namely Flatted Factories, Hi-Tech Buildings, Business Park Buildings, and Stack-Up/Ramp-Up Buildings.

Furthermore, the REIT’s average rental rate across its portfolio for the reporting quarter came in at S$1.89 per square foot per month, up from S$1.83 a year ago. It also represents the ninth consecutive quarter of growth in the average rental rate.

Meanwhile, Mapletree Industrial Trust had ended the quarter with a large and diversified tenant base with its top-10 tenants contributing just 17.1% of its total gross revenue.

Going forward, the REIT has painted a gloomier picture. In the earnings release, the REIT commented:

“The business environment is expected to be challenging in view of the upcoming supply of industrial space and rising interest rates. In addition, the ongoing economic restructuring in Singapore is expected to result in the cost increase of outsourced service contracts. These are likely to exert pressure on rental and occupancy rates, while property expenses and interest expenses are expected to increase.

As at 31 December 2015, only 2.1% of leases (by gross rental revenue) are due for renewal in FY15/16. The Manager will continue to focus on tenant retention to maintain portfolio occupancy, while shifting towards performance-based contracts to manage cost pressures.

The percentage of debt hedged with fixed rates remained high at 85.6% with a healthy interest coverage ratio of 8.3 times. However, replacement of expiring interest rate hedges is expected to be more costly in view of rising interest rates. The Manager will continue with appropriate interest rate hedging strategies to manage interest rate increases.”

Mapletree Industrial Trust closed at S$1.50 on Tuesday. At that price, it’s trading at 1.12 times its latest net asset value and has a trailing- distribution yield of 7.3%.

If you'd like to keep updated on the latest company and stock market news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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