Mapletree Industrial Trust - CIMB Research 2017-07-26: Growth Locked In

Mapletree Industrial Trust - CIMB Research 2017-07-26: Growth Locked In MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Growth Locked In

  • MINT's 1QFY3/18 DPU of 2.92Scts (+2.5% yoy) was slightly below consensus; however, it was in line with our expectations, at 26% of our full-year forecast.
  • Operations remained stable. The yoy increase was led by the phase 1 of build-to-suit development (BTS) for HP Singapore.
  • We reflect the latest update on the phase 2 of BTS for HP and factor in new contributions from BTS for data centre; this raises our FY18-20F DPU by 0.5-1.3%.
  • With growth locked in, investors should continue to HOLD MINT, in our view.
  • Upside/downside risks hinge on favourable/unfavourable acquisitions and Singapore industrial market.

A good start to FY18 

  • In colloquial terms, MINT’s performance was steady pom pi pi. The yoy increase in 1QFY18 net profit was mainly led by the phase one of the build-to-suit development (BTS) for HP Singapore (HP). 
  • Average portfolio passing rent increased to S$1.95 psf/month (4QFY17: S$1.94 psf/month). All property segments registered qoq improvement in average rental rates, except for flatted factories which saw flat rates.

Portfolio update 

  • Average portfolio occupancy fell 50bp qoq to 92.6%, mainly due to flatted factories (-80bp qoq, due to client relocation) and Hi-Tech buildings (-170bp qoq, due to base-effect with the inclusion of the phase 2 of BTS for HP which received temporary occupation permit on 22 Jun). 
  • For lease renewals, Hi-Tech buildings recorded -1.9% reversions while business parks saw -4.5%. 
  • For new leases, notable segments were business parks, which signed new rents 6.6% above passing, and stack-up/ramp-up buildings (+6.2%).

Phase 2 of BTS for HP got temporary occupation permit on 22 Jun 

  • The lease for Phase 2 (P2) will begin on 01 Sep 2017 (vs. our expectation of 01 Jul 2017). P2 will include a rent-free period of 4.5 months (vs. our expectation of 6 months).
  • The first two months of the rent-free period will begin upon the lease commencement while the remaining 2.5 months are distributed evenly over 01 Sep 2018 to 29 Feb 2020.
  • We have accordingly updated our numbers to reflect the changes.

Development cost of BTS for new data centre to increase 

  • The development cost for the BTS data centre has increased from S$60m to S$76m, though we understand that MINT would be compensated and the yield on cost remains unchanged. 
  • With better clarity, we are now modeling in contributions from the new data centre from FY20F, and assume an initial 7% yield on cost. 
  • In addition, MINT divested 65 Tech Park Crescent for S$17.7m (around book value) on 20 Jul 2017. Proceeds will be used to fund committed development projects.

Capital management 

  • Gearing as at end-1QFY18 stood at 29.8% (4QFY17: 29.2%). All-in borrowing cost increased 10bp qoq to 2.8% p.a. due to the issuance of S$100m MTN towards the end of 4QFY17. 
  • Weighted average tenor of debt stood at 3.4 years, with 10% of debt due in FY18. 72.8% of total debt is hedged into fixed rates.

Maintain Hold with slightly higher DDM-TP 

  • With the increase in our DPU estimates, our DDM-TP is nudged up slightly (to S$1.91). 
  • In our view, the development projects offer a visible 5.4% 2-year DPU CAGR till FY20F; and thus, the stock should remain a core REIT holding for investors. However, with total returns of less than 10% at our target price, MINT remains a Hold. 
  • The stock trades at 6.1% FY18F yield (vs. 5-year mean of 7.3%) and 1.34x current P/BV (vs. 5-year mean of 1.2x).

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | 2017-07-26
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.91 Up 1.880