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.

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.

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%).

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.

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.

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.

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 | http://research.itradecimb.com/ 2017-07-26

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.91 Up 1.880