Mapletree Industrial Trust (MINT SP) - DBS Research 2017-07-26: Another Solid Showing

Mapletree Industrial Trust (MINT SP) - DBS Vickers 2017-07-26: Another Solid Showing MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust (MINT SP) - Another Solid Showing

  • 1QFY18 DPU of 2.92 Scts in line.
  • Stable operational performance; Completion of HP built-to-suit project to drive distributions by 2% CAGR over FY18F-20F.
  • Low gearing offers upside to execute on developments or acquisitions.

What’s New 

1Q17 DPU of 2.92 Scts in line.

  • Mapletree Industrial Trust (MINT) reported stable returns for the first quarter of FY18, reporting a 2.5% y-o-y growth in DPU to 2.92scts.
  • Gross revenues and net property income increased by 5.6% and 6.9% y-o-y to S$88.8m and S$68.2m, respectively. This was mainly driven by the contribution from the completion of phase One of the built-to-suit (BTS) project for HP. Striping the contribution from HP, organic portfolio growth is fairly flattish.
  • Interest expenses increased due to higher rates (2.8% vs 2.6% last year) and expensing of such costs (vs capitalising previously) mainly as the project was under development.
  • Distribution income came in 2.7% higher at S$52.9m.

Operational performance

  • Portfolio occupancy remained stable at 92.6% with retention rate of 77.5% for the quarter, roughly in line with the historical mean. Portfolio average rent inched up to S$1.95psf pm due to the contribution from HP, which was signed at a higher average rate, given the high specifications for the property.
  • Rental reversions however was generally negative; in line with expectations of the narrowing gap between expiring rents and market-clearing levels. We note that rental reversionary trends are mixed with flatted factory space flat at c.0.5%; while we see rental reversionary downside at Business Parks (- 4.5%), Stack-Up (-1.5%), and Hi-Tech space (1.9%). The weakness seen in the Business Park was mainly due to the renewal of a major lease.
  • Looking ahead, while we see dissipating supply risk in the industrial sector, we expect rental reversions to remain mixed and at best flat for close to 20% of its income expiring in the rest of FY18F. 
  • Acknowledging that it takes time to gestate the spike in supply completions in 2017, the manager’s strategy is to focus on retention and defending occupancies, which we believe will result in stable returns over the medium term.
  • Johnson & Johnson’s (J&J) lease will expire on 30 Sept 2017 and the manager believes that given competition from shadow space within International Business Park (IBP), back-filling of the vacated space could take some time. Pre-termination compensation of S$3.1m will assist in bolstering income in the immediate term (FY18F) when the manager repositions the space for new prospects. 
  • That said, the full-year contribution from Phase Two of HP BTS will start contributing in the medium term, more than compensating for the weak same-store earnings growth.
  • Development of BTS and Kallang Way remain on track for completion by 1H18, which will be a boost to earnings in the medium term.

Financial Metrics.

  • Manager remains prudent in capital management.
  • Gearing remains low at 29.8% and will increase marginally upon completion of its two AEI projects.
  • Interest cost inched up by 0.1%pt but should remain stable at current levels.

BUY, Target Price S$1.94 maintained.

  • Trading at 1.3x P/NAV, the stock has been accorded premium valuations by investors for its highly resilient earnings stream and income visibility. 
  • We project a steady 2% CAGR in DPU over FY18F-20F. 
  • Our TP implies a total return of > 10%.

Derek TAN DBS Vickers | Melvin SONG CFA DBS Vickers | Singapore Research Team DBS Vickers | 2017-07-26
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.940 Same 1.940