Mapletree Industrial Trust - CIMB Research 2018-01-24: Don’t Swim Against The Tide Or Only Fools Rush In?

Mapletree Industrial Trust - CIMB Research 2018-01-24: Don’t Swim Against The Tide Or Only Fools Rush In? MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Don’t Swim Against The Tide Or Only Fools Rush In?

  • Mapletree Industrial Trust (MINT)'s 9MFY3/18 DPU of 8.80 Scts (+3.4%) was slightly above our expectation, though in line with consensus, at 77% of our full-year forecast. 3QFY18 DPU was at 25%.
  • Singapore occupancy fell 0.3% pt q-o-q to 90.1% in 3QFY18 due to lower occupancies in flatted factories and business parks.
  • We are encouraged by healthy signing rents at 30A Kallang Place (expected to TOP in 1Q18) which could translate to more than 9% yield on cost.
  • With the acquisition of the 40% interest in 14 data centres in the US and private placement of new units, gearing increased to 33.8% (2QFY18: 30%).
  • Mea culpa – we were too early to downgrade MINT on valuations. With a visible DPU growth path, we upgrade Mapletree Industrial Trust from Hold to ADD.



3QFY18 results summary 

  • Mapletree Industrial Trust's 3QFY17 DPU grew 1.8% y-o-y to 2.88 Scts due to contribution from the build-to-suit (BTS) project for HP (both phases contributed). Growth was partially offset by lower Singapore occupancy. 
  • Mapletree Industrial Trust also recorded inaugural contribution from its 40% interest in Mapletree Redwood Data Centre Trust (“MRDCT”) (the vehicle which owns the 14 data centres in the US; acquisition was completed on 20 Dec 2017). We note that the JV’s contributions (S$0.7m) were not included in 3QFY18 distributions, and the 12-day profit run seems to be higher than our expectation.


Portfolio metrics 

  • Singapore occupancy fell 0.3% pt q-o-q to 90.1% in 3QFY18 due mainly to lower occupancies in flatted factories (down 1.8% pt q-o-q to 88.7% as HGST gave up some space) and business parks (down 12.8% pt q-o-q as J&J vacated from The Strategy).
  • Flatted factories experienced -1.6% rental reversion in the quarter; business parks’ rents remained resilient. 
  • Mapletree Industrial Trust has backfilled 23% of space vacated by J&J; it would take 6-9 months to backfill the space completely. New rents are around the same as previous.


Healthy signing rents at 30A Kallang Place… 

  • The S$77m-30A Kallang Place (classified as Hi-Tech building) is expected to TOP (temporary occupation permit) in 1QCY18. Current pre-commitment is c.12%; Mapletree Industrial Trust  is working on another 16-18% and seeks to achieve 30% committed occupancy come 2QCY18. It targets to achieve 75% committed occupancy by end-CY18. 
  • Accordingly, we have modeled in average occupancy of 25%/75% for the building for FY19F/FY20F.


… could translate to over 9% yield on cost 

  • Average signing rent at the property is healthy at c.S$3.50 psf pm (vs. our expectation of sub-S$3), and higher than average rents of c.S$1.95 at other buildings in Kallang Basin 4 cluster. 
  • Occupiers are from tech/IT sector. At stabilised 85% occupancy, average passing rent of S$3.50 could translate to more than 9% yield on cost for the development. 
  • In addition, we have increased our FY18F DPU on higher revenue assumptions, and tweaked our FY19F/20F by -0.2%/+0.3%.


Don’t swim against the tide or only fools rush in? Upgrade to ADD

  • Mea culpa – we were too early to downgrade Mapletree Industrial Trust on valuations. Acknowledging continued interest in the sector, we upgrade Mapletree Industrial Trust from Hold to ADD. 
  • Backed by BTS for HP, another BTS for a new data centre, full-year contribution from the US data centres and ramp-up in 30A Kallang Place, we project 4.6% DPU CAGR for FY17-FY20F. 
  • Our Target Price is raised (to S$2.16) as we roll forward our DDM-valuation and input higher LTG.
  • Downside risk is a turn in investor sentiment.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-01-24
CIMB Research SGX Stock Analyst Report ADD Upgrade HOLD 2.16 Up 1.940



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