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

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


Resilient portfolio, visible growth drivers 

  • 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 in line, improvements broad-based 

  • 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.


Lowest gearing amongst peers 

  • 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.


BUY for 16% total return upside 

  • 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.


Swing Factors


Upside

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

Downside

  • 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



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