Although the Omicron variant has threatened to dampen the festive atmosphere of the Lunar New Year, there’s hope that the pandemic is finally coming to an end.
Many companies are already reporting better numbers amid a nascent recovery.
For instance, Keppel Corporation Limited (SGX: BN4) posted its highest net profit in six years and tripled its final dividend.
Strong and well-managed REITs have posted steady, reliable performances.
One such example is Mapletree Industrial Trust (SGX: ME8U), or MIT.
The industrial REIT has been a bastion of stability throughout its 11-year existence on the Singapore Exchange (SGX: S68).
The REIT has released its results for its fiscal 2021/22 third quarter (3Q22) ended 31 December 2021, and here are four important things to note.
Portfolio remains resilient
MIT’s portfolio of 143 properties closed the calendar year with S$8.6 billion in value, with over half of assets under management (AUM) comprising data centres across Singapore and North America.
Overall portfolio occupancy remained strong at 93.6%, albeit dipping slightly from 93.7% in the previous quarter.
A key strength of MIT lies within its tenant base.
With over 2,000 tenants across a myriad of trade sectors, MIT is well-shielded from unexpected market conditions.
The top tenant by gross rental income (GRI), HP Inc (NYSE: HPQ), only contributes 6.2% of GRI.
The REIT has also done well to manage these tenants.
During the quarter, MIT enjoyed a strong tenant retention rate of 84%, as well as positive rental revisions on its hi-tech buildings, light industrial buildings and ramp-up buildings.
MIT’s weighted average lease expiry is also comfortable at 4.2 years.
NPI and DPU advance
On the financial front, MIT continued to record strong figures, posting gross revenue of S$162.4 million for the quarter.
The figure represents a year on year improvement of 31.3%.
Correspondingly, net property income grew 24.1% year on year to reach S$122.7 million, and the REIT raised its distributions per unit (DPU) to S$0.0349, 6.4% higher year on year.
MIT’s latest distribution means that at the current unit price of S$2.51, the REIT offers investors a trailing 12-month distribution yield of 5.4%.
The increased payout means that MIT looks set to maintain its enviable track record of raising DPU every fiscal year since its listing in 2010.
Strong capital position
MIT has been able to exercise prudent capital management.
As of 31 December, the REIT’s aggregate leverage ratio stood at 39.9%, comfortably below the regulatory limit of 50%.
Trailing 12-month interest coverage ratio remained high at 5.9 times for the quarter, and weighted average debt maturity was 3.5 years on the REIT’s total debt of S$2.98 billion.
9.2% of total debt will mature in the last quarter of FY21/22, with another 13% due to mature in the next fiscal year.
Outlook remains uncertain
Going forward, MIT expects a challenging operating environment due to the uncertainty of the economic recovery from the pandemic caused by the Omicron variant.
Business sentiment is expected to be lukewarm, with a deceleration of global growth expected.
However, data centres represent a bright spark in MIT’s portfolio.
With an ever-increasing amount of businesses going online, demand for both enterprise and consumer-related cloud services is expected to remain strong.
Although average rental rates for data centres in the US have declined due to increased supply, limitations in space and power, as well as supply chain disruptions, could restrict new developments and push rents upward again.
Get Smart: Data centre moratorium lifted
With a reliable power grid and business-friendly environment, Singapore is a popular location for data centres.
But back in 2019, the Singapore government imposed a moratorium on the development of new data centres, citing the excessive consumption of electricity and water.
The cap will now be lifted, with new data centre applications to be accepted from Q2 2022.
New applications will have to meet new power usage effectiveness requirements, as well as provide innovative sustainability solutions to be more environmentally friendly.
This latest development could benefit MIT, which has a large exposure to data centres in its portfolio.
With its existing capabilities in operating data centres across Singapore and North America, the REIT could have an advantage if it decides to construct data centres that meet the new rules.
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Disclosure: Herman Ng owns shares of Mapletree Industrial Trust.
