A MAPLETREE Industrial Trust (MIT) tenant, which is in a Chapter 11 bankruptcy process in the US, has agreed to sell its assets, including all eight of its data centre leases held by MIT.

 

The tenant had entered into an asset purchase agreement with Brookfield Infrastructure Partners to acquire substantially all of the tenant&rsquo s and its affiliates&rsquo assets, MIT&rsquo s manager said on Friday (Nov 17).

 

Six of the eight data centre leases will be assumed with no change to the terms, conditions, or rental rates under the existing lease agreements.

 

As for the other two leases, agreements to amend the existing terms have been executed. These leases accounted for around 0.3 per cent and 0.6 per cent, respectively, of the Reit&rsquo s monthly gross rental income.

 

The tenant was MIT&rsquo s fourth largest in its portfolio and accounted for around 3 per cent of its monthly gross rental income as at Sep 30.

 

The tenant currently occupies space in eight data centres located in North America within MIT&rsquo s portfolio. Seven data centres are held under the Mapletree Rosewood Data Centre Trust, a 50:50 joint venture between MIT and Mapletree Investments.

 

The transaction with Brookfield is expected to be completed in the first quarter of 2024.

 

In June, MIT&rsquo s manager said one of the Reit&rsquo s tenants had initiated a pre-arranged court-supervised process under Chapter 11 of the United States Bankruptcy Code.

 

It noted that the tenant, a global co-location provider, had received a commitment for US$200 million in debtor-in-possession financing and intended to pay vendors.

 

The troubled tenant is understood to be Cyxtera, a Nasdaq-listed data centre operator.

 

MAPLETREE Industrial Trust : ME8U -1.37% (MIT) reported a distribution per unit (DPU) of S$0.0332 for the second quarter ended Sep 30, down 1.2 per cent from S$0.0336 in the same period a year prior.

 

The decline in DPU was due to an enlarged unit base, MIT&rsquo s manager said in a bourse filing on Wednesday (Oct 25).

 

The amount distributable to unitholders in Q2 FY23/24 rose 3.5 per cent to S$94.1 million, from S$90.9 million previously.

 

It included compensation for the compulsory acquisition of land at 2 and 4 Loyang Lane, and net divestment gains from the sale of 65 Tech Park Crescent, the manager said.

 

Gross revenue for Q2 fell 0.8 per cent to S$174.1 million, from S$175.5 million previously. Net property income (NPI) for the quarter fell 1.4 per cent to S$128.6 million, from S$130.3 million in the year-ago period.

 

The fall in NPI in Q2 came partly from the weakening of the US dollar during the quarter, and loss of income from the non-renewal of leases. However, these were offset by new leases across the group&rsquo s portfolio, the manager said.

 

MIT&rsquo s portfolio occupancy stood at 93.2 per cent as at end-September, down slightly from 93.3 per cent as at end-June.

 

For the six months ended Sep 30, the amount distributable to unitholders grew 1.7 per cent to S$187.8 million. But DPU was down 2 per cent to S$0.0671 from the same period the year before.

 

Gross revenue for H1 FY23/24 rose 0.4 per cent to S$344.7 million NPI declined 0.3 per cent to S$259.4 million.

 

MIT has 142 properties in Singapore, North America and Japan. In September, it completed the previously announced acquisition of a data centre in downtown Osaka &ndash its sole property in Japan.

 

Tham Kuo Wei, chief executive officer of MIT&rsquo s manager, said: &ldquo The acquisition of the Osaka data centre represents another milestone in our strategy to strengthen the portfolio and diversify our portfolio geographically.&rdquo

 

As at end-September, MIT&rsquo s aggregate leverage ratio stood at 37.9 per cent, from 38.2 per cent as at end-June.

 

Its weighted average lease expiry (WALE) for the portfolio grew to 4.2 years as at end-September, from 3.9 years as at end-June. This was due to the Osaka data centre WALE of 19.1 years as at Sep 30, the manager said.

 

Looking ahead, the manager said that it will adopt &ldquo cost-mitigating measures while focusing on tenant retention to maintain a stable portfolio occupancy level, as well as prudent capital management to balance the risks and costs in the elevated interest rate environment&rdquo .

 

The distribution for Q2 will be paid on Dec 5.

 

Mapletree Industrial Trust (MINT) has announced a distribution per unit (DPU) of 3.39 cents for 1QFY2023 ended June 30, an increase of 1.8% q-o-q.

 

However, this is a 2.9% decrease from the 3.49 cents DPU from 1QFY2022. This is a result of the private placement on May 25, and distribution reinvestment plan for distributions from 3QFY2021 to 3QFY2022.

 

The gross revenue and net property income for 1QFY2023 increased by 1.7% y-o-y to $170.6 million.

 

While net property income (NPI) grew 1.5% q-o-q and 0.7% y-o-y to $130.8 million, which was mainly attributed to lower property operating expenses.

 

The amount available for distribution to unitholders increased by 3.1% q-o-q to $89.9 million, but fell by 2.5% y-o-y as the higher net property income was offset by higher borrowing costs.

 

The contributions from new leases across various property clusters were partially offset by higher property operating expenses.

 

The average rental rate of the Singapore portfolio increased to $2.18 per square foot per month (psf/mth) in 1QFY2023 from $2.16 psf/mth in 4QFY2022.

 

In addition, positive rental revisions for renewal leases were achieved across most property segments in Singapore with a weighted average rental revision rate of about 5.3%. The average rental rate of the North American portfolio also increased to US$2.41 psf/mth ($3.20 psf/mth) in 1QFY2023 from US$2.40 psf/mth in 4QFY2022.

 

The aggregate leverage ratio as at June 30 stood at 38.2%.

 

On July 6, an advance distribution of 2.48 cents per unit for the period from April 1 to June 5, and unitholders will receive a distribution of 0.91 cent per unit for the period from June 6 to June 30.

 

MINT says that global growth was projected to slow substantially to 2.1% in 2023 before a tepid recovery to 2.4% in 2024. Numerous risks, such as further global financial stress, persistent inflation, geopolitical tensions and conflict and social unrest could cause the global growth forecast to decline further.

 

Therefore, increasing property operating expenses and borrowing costs could continue to exert pressure on distributions. MINT says it will adopt cost-mitigating measures while focusing on tenant retention to maintain a stable portfolio occupancy level.

 

As at June 30, MINT&rsquo s overall portfolio occupancy stood at 93.3%, 1.6 percentage points lower q-o-q. Its weighted average lease expiry (WALE) stood at 3.9 years by gross rental income (GRI).

 

On MINT&rsquo s entry into the Japanese data centre market, Tham Kuo Wei, CEO of the manager, says that the proposed acquisition of the data centre in Osaka &ldquo underscores our strategic focus of strengthening the portfolio through accretive acquisitions and diversifying our portfolio geographically. The addition of a high-quality data centre with a long-term lease to an established data centre operator will improve the stability of MINT&rsquo s income stream. We will press ahead with our portfolio rebalancing efforts as we navigate the macroeconomic headwinds.&rdquo

 

MAYBANK Securities has lowered its target price on Mapletree Industrial Trust : ME8U -0.45% (MIT) to S$2.30 from S$2.45, while maintaining its &ldquo hold&rdquo rating on the counter, after news of the trust&rsquo s third-largest tenant initiating bankruptcy proceedings.

 

In a report on Tuesday (Jun 6), analyst Krishna Guha said the latest development poses potential downside risks to MIT&rsquo s data centre assets, and adds to the research house&rsquo s concerns over a slowdown in local manufacturing. 

 

Maybank&rsquo s lower target price on MIT accounts for reduced distribution per unit (DPU) estimates and medium-term growth rate assumptions &ldquo mainly due to growth headwinds emerging in the data centre segment&rdquo .

 

The research house has cut its forward DPU by 1 per cent to 3 per cent after factoring in the potential impact from the tenant bankruptcy, which more than offset estimated DPU accretion from MIT&rsquo s proposed Osaka acquisition.

 

Guha said that the news that MIT&rsquo s tenant had initiated bankruptcy proceedings, or the timing of the announcement, was &ldquo not surprising&rdquo given the recent trend of negative headlines reported by MIT&rsquo s peers and other tenants. 

 

&ldquo However, it raises concerns on whether the data centre growth story is beginning to unravel,&rdquo he said. 

 

Although Guha believes MIT should be able to mitigate the negative impact from its tenant&rsquo s bankruptcy thanks to its diversified tenant base and portfolio, he cautioned of wider industry headwinds, which may in turn affect overall demand for industrial space. 

 

&ldquo While we recognise MIT&rsquo s relatively attractive valuation among the large-cap industrial Reits (real estate investment trusts), the sharp and prolonged slowdown in the local manufacturing sector is likely to weigh on demand for industrial space, especially the high-tech segment, in our view.&rdquo