MIT Tenant Initiated Bankruptcy

MIT Tenant Initiated Bankruptcy

On 6th June 2023, the manager of Mapletree Industrial Trust (MIT) announced that one of its tenant has initiated the Chapter 11 bankruptcy process. The tenant had received a commitment for US$200 million in debtor-in-possession financing and intended to pay vendors and suppliers in full for goods and services provided on or after the Filing Date.

As shared in Mapletree Industrial Trust’s fourth quarter FY22/23 financial results, the Tenant is a Global Colocation Provider and is Mapletree Industrial Trust’s third largest tenant in terms of Gross Rental Income.

The Global Colocation Provider currently occupied spaces in eight data centres held under the Mapletree Rosewood Data Centre Trust which was a 50:50 joint venture between Mapletree Investments and Mapletree Industrial Trust.

It was shared that the Tenant has met its full rental obligations for the month of April 2023 and partially fulfilled its rental obligations for the month of May 2023. Mapletree Industrial Trust is pursuing the balance of the outstanding rental payments for the month of May 2023.

MIT Portfolio 4Q FY22

As of 31st March 2023, Mapletree Industrial Trust has 141 properties across 6 property segments. Even though the bankruptcy of this tenant will most likely impact the occupancy, the portfolio remains resilient because of its large diversified tenant base.

Fitch has kept Mapletree Industrial Trust rating at BBB+ or Stable. This is because the rating company believes Mapletree Industrial Trust has adequate headroom under its funds flow from operations (FFO) net leverage metric to absorb a stressed scenario in which the tenant ceases to pay rent during the reorganisation process, and Mapletree Industrial Trust is not able to quickly find replacement tenants.

Mapletree Industrial Trust Tenant Base

Current Dividend Yield

As you can see below, the share price continued its decline. Based on the FY22/23 full year DPU of 13.57 cents and current share price of S$2.18, this translate to a current dividend yield of 6.22%.

Mapletree Industrial Trust Share Price 9 June 2023

Summary of MIT Tenant Initiated Bankruptcy

I am closing this off by sharing my thoughts.

  • The filing of bankruptcy by the Global Colocation Provider is not uncommon because Sungard which was also one of Mapletree Industrial Trust’s data centre tenant also filed for bankruptcy in 2022. This is a risk in REITs with data centres and not limited to only Mapletree Industrial Trust.
  • Finding a new tenant may take up to 12 months. During this period, Mapletree Industrial Trust will suffer from a loss of rental income (estimated 3.2%).
  • Expect decline in Distribution Per Unit due to the loss of rental income.
  • There is an opportunity as share price continue to decline. The current dividend yield is 6.22%.

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