Mapletree Industrial Trust - CIMB Research 2017-04-25: Tactical Pause, Downgrade To Hold

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Tactical pause; downgrade to Hold

FY17 DPU of 11.39 Scts (+2.2% yoy) was in line with consensus and our expectations, at 101% of our full-year forecast. 4QFY17 DPY was at 25%.
Despite headwinds and management’s conservativeness, MINT’s performance remains steady, with visible growth underpinned by organic developments.

We forecast flat FY18 DPU as we expect NPI margin to normalise, offsetting contributions from HP.
We take a tactical pause and downgrade MINT from Add to Hold.

Despite headwinds and management’s conservativeness, MINT's performance remains steady, with visible growth underpinned by organic developments.
4QFY17 DPU of 2.88 Scts improved 2.5% yoy on rental rates achieved in flatted factories, hi-tech buildings and stack-up/ramp-up buildings as well as revenue contribution from phase one of the BTS for Hewlett-Packard (HP), partially offset by lower portfolio occupancy.
Also, a record NPI margin of 75.4% was achieved, reflecting good cost management.

The improvement was due mainly to lease commencement of phase one of the BTS for HP.
Occupancy for business parks improved 3% pts qoq to 90.3% due to a multinational ICT tenant which took up c.45k sq ft at The Signature in Dec 16.
Occupancy for light industrial buildings dropped 3.6% qoq to 93.3% as a tenant in 45 Ubi Road 1 did not renew its lease.

Again, the improvement was mainly led by HP. Flattish rental reversion was observed across all segments except for hi-tech buildings (+4%) and stack-up/ramp-up (-4% yoy), which was attributable to bulk space being renewed in the quarter.
Market data for business parks showed 7.5% qoq drop in rents to S$3.97 psf pm. One explanation could be that fewer leases were signed at One North (which commands higher rent).

No replacement tenants have been found for the J&J space, and we view that it could take MINT beyond Sep 17 (the month which J&J vacates) to backfill the space with a couple of smaller tenants. That said, we do not think the space would remain vacant for as long as what The Signature experienced three years back.
There is also no pre-commitment at 30A Kallang Place as yet.

The gain comprises revaluation gain of S$70.2m (due to improved performance as cap rates are unchanged) and capitalised cost of S$120.6m from progressive development works.
NAV increased from S$1.37/unit as at end-FY16 to S$1.41 as at end-FY17.

MINT issued S$100m 3.16% 7-year notes in Mar 17 increasing average debt tenor and hedge tenor to 3.5 years and four years respectively. As such, all-in funding costs ticked up 10bp qoq to 2.7%.
MINT has S$115m of borrowings (10% of debt) due in FY18.

We forecast flat DPU for FY18 as we expect NPI margin to normalise, offsetting contributions from HP. We also conservatively bake in slight negative rental reversions and some vacancy downtime for the J&J space.
Our forecasts have not factored in the recent BTS data centre and we would incorporate that as it nears completion date in 2H18.
We note that full-year contribution for the data centre would be felt in FY20 (or three years out) and would form c.1% of FY20 NPI (assume 6.5-7% NPI yield).

We downgrade MINT from Add to Hold as total returns now only spring from FY18 yield of 6.4%.
We tweak FY18-19 DPU for housekeeping reasons. Our TP is raised (from S$1.68 to S$1.80) as we roll forward our DDM valuations and re-peg our Singapore discount rate to sector.
Upside/downside risks hinge on industrial conditions.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-04-25

CIMB Research SGX Stock Analyst Report HOLD Downgrade ADD 1.80 Up 1.680