Mapletree Industrial Trust (MINT SP) – A decent quarter overall
• 3QFY22 DPU grew 6.4% YoY to 3.49 S cents given boost from distribution of divestment gain
• Flat to positive rental reversions
• Occupancy stable at 93.6%
3QFY22 results met our expectations – Mapletree Industrial Trust (MIT) reported a decent set of
3QFY22 results which met our expectations. Gross revenue and NPI jumped 31.3% and 24.1% YoY to
SGD162.4m and SGD122.7m, respectively. The significant increase was due largely to contribution
from acquisitions. DPU grew 6.4% YoY to 3.49 S cents, and this was boosted by the distribution of
divestment gains from the sale of 26A Ayer Rajah Crescent. For 9MFY22, MIT’s NPI rose 34.2% to
SGD347.8m and DPU grew 11.5% YoY to 10.31 S cents. This accounted for 76.5% of our FY22 forecast.
MIT will be resuming its distribution reinvestment plan (DRP) for 3QFY22’s distribution to help fund the
progressive needs of its development projects.
Rental reversions stabilised in 3QFY22 – MIT registered a more stable quarter of rental reversions in 3QFY22. This came in flat to positive, with Flatted Factories and Business Park Buildings coming in flat,
and Stack-Up/Ramp-Up Buildings and Hi-Tech Buildings recording positive rental reversions of 0.8%
and 1.7%, respectively. Average rental rate for MIT’s Singapore portfolio remained unchanged QoQ at SGD2.13 psf/month in 3QFY22. Overall portfolio occupancy was also stable, coming in at 93.6% (-0.1 percentage point (ppt) QoQ to 93.7%), with Singapore occupancy seeing a marginal 0.1 ppt uptick to 93.7% but offset by the US which saw a 0.6 ppt decline to 93.3%. Tenant retention rate was high at 84.0% in 3QFY22 for its Singapore portfolio.
Aggregate leverage ratio increased to 39.9% – MIT’s aggregate leverage ratio increased from 39.6% (as at 30 Sep 2021) to 39.9%. The resumption of the DRP as mentioned earlier should help MIT to control
its leverage ratio. 79.7% of its debt has been fixed/hedged, and this should also help to mitigate a higher interest rate environment. We lower our cost of equity assumption slightly from 6.4% to 6.3% on account of an improvement in MIT’s ESG rating. However, we also pare our terminal growth rate by 25 bps to 1.75% given the keen competition for quality data centre assets and a more uncertain macro-outlook. Consequently, our fair value estimate dips from SGD3.42 to SGD3.30.
ESG Updates
MIT’s ESG rating was upgraded in Nov 2021. The upgrade was largely driven by improvements in MIT’s corporate governance practices, particularly in its executive pay disclosures. Although there were previously concerns over the number of transactions with its sponsor, we believe there are mitigating factors to protect minority unitholders’ interests. For example, the properties to be acquired have to be valued by an independent valuer. Furthermore, MIT has historically been able to acquire properties from its sponsor at a discount to the independent valuation and make it DPU and NAV accretive to unitholders. BUY. (Research Team)
Starhill Global REIT (SGREIT SP) – Weaker-than expected set of results
• 1HFY22 core DPU rose 2.3% YoY
• Portfolio occupancy stable at 96.9%
• Pare forecasts and fair value to SGD0.61
1HFY22 results below our expectations – Starhill Global REIT’s (SGREIT) 1HFY22 results came in below our expectations. Gross revenue and NPI rose 2.9% and 7.2% YoY to SGD91.0m and SGD69.6m, respectively. Growth was driven by lower rental concessions for eligible tenants, including allowances for rental arrears and rebates for its Australia properties, as well as cessation of rental rebates in Malaysia following the completion of asset enhancement works at The Starhill in Dec 2021. This was partially offset by lower income from Wisma Atria (retail). DPU fell 5.3% YoY to 1.78 S cents, but the decline was largely attributed to the release of SGD3.1m (~0.14 S cents per unit) of distributions in 1HFY21 as part of its distributable
income which was deferred during the earlier Covid-19 period. Excluding this, SGREIT’s DPU would have increased 2.3% to 1.78 S cents. However, 1HFY22 DPU accounted for 45.8% of our initial FY22 forecast, which we deem to be below expectations.
Improving trend seen in footfall and tenant sales in Singapore – Operationally, SGREIT’s Wisma Atria (retail) property saw an improvement in shopper traffic and tenant sales by 14.6% and 1.3% YoY, in
2QFY22, respectively, due to some relaxation in Covid-19 measures. Although shopper traffic was
up 18.9% YoY in 1HFY22, tenant sales were down 2.8% given the lack of tourist arrivals. Overall portfolio
occupancy was stable, inching up 0.1 percentage point (ppt) QoQ to 96.9%. The slight increase in SGREIT’s Singapore retail portfolio (+1.0 ppt QoQ to 99.5%) and Australia portfolio (+0.2 ppt QoQ to
95.2%) was partially offset by a 0.6 ppt QoQ dip in its Singapore office portfolio to 90.4%, though committed occupancy was higher at 94.7%. One positive development is the news that UNIQLO will
be opening its first retail store in South Australia at SGREIT’s Myer Centre Adelaide, although this will
only happen in 4QCY22.
Lower forecasts and fair value to SGD0.61 – SGREIT’s gearing ratio declined slightly from 36.3% (as at 30
Sep 2021) to 36.1%, and 90% of its borrowings have been hedged/fixed. We cut our FY22F and FY23F DPU forecasts by 6.8% and 5.3%, respectively, largely on higher finance costs and lower contributions from Wisma Atria (retail). Correspondingly, our fair value estimate dips from SGD0.64 to SGD0.61.
ESG updates
SGREIT’s ESG rating was downgraded in Jan 2021. SGREIT’s overall corporate governance practices trail those of its global and home market peers, particularly in board structure. However, it scores better in the category of ‘Opportunities in Green Building’, with SGREIT engaging with its tenants to improve on the operational efficiencies of its properties. ~30% of SGREIT’s overall portfolio is certified by recognised green building standards, which is higher than the industry average of 25% as of FY19. HOLD. (Research Team)
China Everbright Environment (257 HK) – Needs strong support from banks
• Slower new project development ahead
• But just as well since the concern is on the balance sheet
• Looking to securitise more accounts receivables and other deleveraging efforts
Waste-to-energy business growth may slow – In a recent update by the company, China Everbright Environment (CEE) mentioned that the waste-toenergy industry (WTE) industry growth is likely to slow down in the 14th Five-Year Period (2021-2025E), with daily treatment capacity target to augment to 800k tonnes by 2025E, from 550k tonnes in end 2020. CEE itself expects slower new project development ahead and the revenue mix from construction should decline gradually. In 1H21, 59% of CEE’s revenue was from non-cash construction revenue, 30% from operations and 10% from finance income.
But continue to watch out for rising gearing – For CEE, the concern, however, has centered more on
its financial health, due to the group’s high accounts receivables and long cash conversion cycle. CEE’s gearing (total liabilities/total assets) rose steadily from end 2014 to end 2017 (to 61%), and the group then undertook a rights issue in Aug 2018 (10 per 27 ratio with HKD6.00 subscription price). Gearing then went down in end 2018 to 57% but has since then resumed its rise with capex for expansions. Considering that management previously guided a 20% increase in capex guidance to HKD 26b for 2021, and may continue to secure projects, we believe that the group’s leverage ratios will only continue to rise, unless
there are initiatives to deleverage or the group is able to improve on its subsidy and receivables collection. As mentioned in our earlier report, management was exploring to securitise more subsidy receivables as asset-backed securities to accelerate asset turnover, as well as the possibility of an A-share dual listing. The group recently issued its first batch of asset backed notes with tariff subsidy receivables as underlying assets with an amount of RMB672m in Dec 2021 with interest rates of 3.52%. This is in addition to earlier issuances by China Everbright Greentech, its subsidiary. Meanwhile CEE’s gearing has continued to increase from 57% in 2018 to 67% as at 1H21, which is higher than that in 2017 before the rights issue. The group’s negative free cash flow remains a concern, in our view. We maintain our fair value estimate of HKD5.30.
ESG updates
Save for an improvement in ESG rating, China Everbright Environment’s ESG rating has been consistent for the past few years. The company scores higher than industry average on Toxic Emissions & Waste and Carbon Emissions, but lower than average for Governance and Health & Safety. As a state-owned entity, the company is highly exposed to scrutiny over its business practices, given the Chinese government’s efforts toward fighting corruption. The company prohibits facilitation payments and has whistleblower
protection systems. However, it found limited evidence of enforcement mechanisms such as supplier compliance or audits of ethics standards. SELL. (Research Team).