Mapletree Industrial Trust (MINT SP) - Maybank Kim Eng 2017-07-26: Crystalising HP Build-to-Suit

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust (MINT SP) - Crystalising HP Build-to-Suit

Mapletree Industrial Trust (MINT) achieved 1Q18 DPU of SGD2.92cts, up 2.5% YoY and 1.4% QoQ, helped by broad-based improvements across its Singapore-focused, multi-tenanted properties, and steady ramping-up of its Hewlett-Packard (HP) build-to-suit (BTS) facility.
Looking ahead, we see visible growth drivers from a rising hi-tech buildings contribution in driving a 3.6% 3- year DPU CAGR, while an estimated SGD1b in debt headroom could support acquisition growth upside, not priced into our earnings and valuations.

For now, with 16% total return upside to our DDM-based Target Price of SGD2.05, we reiterate BUY.

1Q18 results were in line, with revenue and NPI up 5.6% YoY and 6.9% YoY respectively.
Portfolio occupancy was marginally down QoQ and YoY to 92.6%, as some tenants relocated to newer third-party properties, while average portfolio passing rent increased at +1.6% YoY and +0.5% YoY to SG1.95 psfpm, underpinned by QoQ improvement in all segments except flatted factories, which remained flat.
The stronger performance was largely driven by rising contribution from the Hewlett-Packard (HP) build-to-suit (BTS) Phase 1, with Phase 2 completed in Jun 2017, and leasing (with a 4.5-month rent-free period) to commence on 1 Sep 2017.
Management is targeting 75% NPI margin, against the hi-tech buildings segmental FY13-17 average of 69.7%, while leases have not been pre-committed at Kallang Basin, as AEI is on track for completion in 1Q18.

Aggregate leverage rose to 29.8% from 29.2% at end-Mar 2017, with all-in borrowing costs at 2.8% (up from 2.7%). Hedged borrowing ratio was at 72.8% (from 74.9% at end-Mar 2017) as wtd average debt maturity was maintained at 3.4 years, following the issuance of SGD100m 7-year MTN at 3.16% coupon in the earlier quarter.
We continue to believe that MINT ranks best amongst industrial REIT peers on balance sheet metrics, with lowest gearing and an estimated SGD1b debt headroom (about 30% of its market cap), to support potential acquisition growth opportunities in Singapore’s business park space and overseas data centres.

We fine-tune our model and estimates, factoring in the recent 65 Tech Park Crescent asset divestment, and lift NPI margin assumptions.
MINT offers visible growth drivers to our DPU forecasts, which imply 3.6% CAGR from FY17-20E, and supports our DDM-based SGD2.05 Target Price. BUY.

Earlier-than-expected pick-up in leasing demand driving improvement in occupancy.
Better-than-anticipated rental reversion trend.
Accretive acquisitions.

Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates.
Termination of long-term leases contributing to weaker portfolio tenant retention rate.
Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-07-26

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.050 Same 2.050