October 3, 2017 / 8:15 AM / 10 months ago

Fitch: Mapletree Industrial Trust's New Push Helps It Diversify

(The following statement was released by the rating agency) SINGAPORE, October 03 (Fitch) The expansion of Mapletree Industrial Trust's (MIT, BBB+/Stable) investment strategy to include data centre properties outside of Singapore will help improve the trust's diversification Fitch Ratings says. We expect MIT to acquire income-generating assets in developed markets, with long lease tenors and contracts with tenants of strong credit standing in order to mitigate the risks associated with increasing its exposure to this asset class. MIT announced on 26 September it will look beyond industrial properties in Singapore to include income-producing data centres outside of Singapore. The strategy will come into effect by 26 October, the trust said. Out of MIT's SGD3.8 billion in assets at 30 June 2017, 6.5% were data centres in Singapore, and the trust has set an initial target of increasing the share of data centres overseas to 20% of assets over the medium term. Fitch sees this move as a natural progression of MIT's growing penetration into higher-value, high-tech buildings over the last few years, which has improved stability of the trust's operating cash flows. Fitch believes data centres would benefit from medium-term growth generated by increasing global internet traffic, higher bandwidth needs, outsourcing trends and the increasing take-up of cloud-based services. Data centres are specialised properties operating in a niche sector with significant barriers to entry. However, data centre properties are a less mature asset class compared with other mainstream real-estate assets. For this reason, the market for these properties is more illiquid, and the extent to which they can be used for leverage is lower, especially during periods of market stress. There is also a relatively low, long-term risk that rapid technological development may render the assets obsolete. MIT has outlined its preference for income-generating properties in the developed markets of North America, Europe and Asia Pacific, such as France, Germany, UK, and Australia. These locations have strong supporting infrastructure, such as high-speed global connectivity and reliable and secure power sources, as well as favourable business environments and government support. An increase in MIT's exposure to data centres will lengthen the trust's lease expiry profile, from around three years at present, as well as the unexpired term of land leases from around 39 years, and improve cash flow stability because leases for data centres typically come with fixed or indexed periodic rent escalations. However MIT's currently modest tenant concentration, where its 10 largest tenants accounted for 21.1% of gross rental income at end-March 2017, is also likely to increase. Fitch expects the trust to maintain a prudent long-term financial profile, with the loan-to-property value (LTV) ratio at no more than 40%, and its funds flow from operations (FFO) fixed charge cover no less than 6.5x, in spite of its new investment strategy. The trust currently has significant headroom in these metrics under its rating, with a LTV of 29% and FFO fixed charge cover of 7.7x as of 31 March 2017. Contact: Hasira De Silva, CFA Director +65 6796 7240 Fitch Ratings Singapore Pte Ltd One Raffles Quay 22-11, South Tower Singapore 048583 Bernard Kie Associate Director +65 6796 7216 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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