Mapletree Industrial Trust - Phillip Securities 2017-04-26: Hi-Tech Buildings Driving Growth

Mapletree Industrial Trust - Phillip Securities 2017-04-26: Hi-Tech Buildings driving growth MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Hi-Tech Buildings driving growth

  • 4Q gross revenue and DPU in line with our forecast.
  • FY17 gross revenue in line with our forecast and consensus expectation.
  • FY17 DPU in line with our forecast, and exceeded consensus expectation by 3.5%.
  • Portfolio weighted average rental reversion of -0.2% for the quarter.

Leasing update on early-termination of J&J at The Strategy 

  • As disclosed in the previous quarter, Johnson & Johnson (J&J) had confirmed it would be terminating its lease on September 30, 2017 (nine months early). The manager has not secured a tenant with a large space requirement to fill the vacancy. 
  • The S$3.1 million compensation for the early-termination covers only six months of rent. The manager is not optimistic of fully leasing out all of the space by 2018, even by various smaller tenants. 
  • The vacant space accounts for 28% of net leasable area (NLA) of The Strategy and 2.2% of portfolio gross rental income (GRI).

Outlook for the portfolio is stable; 28.2% of leases expiring in FY18 

  • While the 28.2% level of expiries for FY18 is higher than subsequent years, there are no concentrated exposures, according to the manager. 
  • Weighted average lease expiry (WALE) of the portfolio has shortened quarter-on-quarter (q-o-q) to 3.1 years by GRI; and portfolio occupancy has improved q-o-q to 93.1% from 92.1%. 
  • There was some weakness in the Stack-up/Ramp-up Buildings and Light Industrial Buildings segments in terms of tenant retention, resulting in lower q-o-q occupancy. The manager shared that the tenants left mainly due to consolidation of operations elsewhere or downsizing of operations. We believe this is a reflection of industrialists managing their cost.

Data centre BTS to boost portfolio in High-Tech Buildings segment 

  • The recently announced six-storey data centre build to suit (BTS) project will be developed at a cost of S$60 million. There is sufficient debt facilities and headroom for the project to be fully funded by debt, making it accretive. The project is expected to be completed in 2H CY2018. 
  • We do not see the project contributing materially to the portfolio that is now valued at S$3.7 billion. The GRI contribution only adds on ~1% to FY19e, by our estimates.

30A Kallang Place AEI on track for completion in 1Q CY2018 

  • As with the previous quarter, there has not been any pre-commitments, save for a childcare centre to serve as an amenity for the other tenants of the development. 
  • We have started to include a GRI forecast into our model, starting with 50% occupancy in 1QFY19 and ramping up to full occupancy by the end of FY19.

Downgrade to "Neutral" with higher target price of S$1.80 (previous: $1.74) 

  • At 29.2% gearing, Mapletree Industrial Trust (MINT) has one of the lowest gearing within the S-REIT universe. 
  • Our target price represents an implied 1.3x FY18e P/NAV multiple. We believe the growth potential has already been adequately priced-in, resulting in our "Neutral" rating. However, long-term growth remains intact and investors should look to accumulate on temporary price weakness.

Richard Leow cFTE Phillip Securities | http://www.poems.com.sg/ 2017-04-26
Phillip Securities SGX Stock Analyst Report NEUTRAL Downgrade ACCUMULATE 1.80 Up 1.740