Mapletree Industrial Trust - Phillip Securities 2018-01-24: Strategic Acquisition In US To Lift Portfolio

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Strategic Acquisition In US To Lift Portfolio

Mapletree Industrial Trust - Gross revenue 4.1% higher than expected; we under-estimated the impact of Phase 2 of the HP build-to-suit DPU consequently higher than our estimate by 3.6%
JV of 14 US data centres started contributing and mitigates domestic headwinds.
Maintain NEUTRAL; higher target price of $2.15 (previously $1.99).

➕ Higher back-filling of space vacated by Johnson & Johnson at The Strategy. The vacated space (28% of NLA at The Strategy) is now 23% back-filled, which is slightly higher than the 15% reported in the previous quarter.
➕ Gearing remains relatively low at 33.8%, albeit higher q-o-q from 30.0%. The increase in borrowings was to part fund the acquisition of the US data centres.
➕ Enquiries are picking up at the Kallang AEI project. The manager reported that it has secured 12% commitment for 30A Kallang Place and Kallang Basin 4 Cluster asset enhancement initiative (AEI), improving the 3% that was stagnant over the previous two quarters.
There are more enquiries for the property now that it is almost completed (expected to obtain temporary occupation permit in January or February). The manager has ~18% more in discussion and is optimistic on reporting 30% occupancy at the end of FY17/18 and 75% occupancy by the end of CY2018. Prospects are coming from technology companies such as software and information technology development.

➖ Portfolio weighted average rental reversion of -1.18%. Dragged down by Flatted Factories (-1.6%) and Stack-up/Ramp-Up Buildings (-1.7%).
➖ Marginally lower Singapore occupancy q-o-q from 90.4% to 90.1%. Dragged down by Flatted Factories (a larger tenant not fully renewing space) and Business Park Buildings (effect of J&J pre-termination). However, overall portfolio is marginally higher at 90.5%, after taking into account the 40% proportionate share of the US data centre portfolio that is 97.4% occupied.

The outlook is stable to positive. Oversupply situation is improving, with the tapering of new supply in 2018.
Mapletree Industrial Trust has two projects coming on stream in 2018 – Kallang AEI (leasing is ongoing) and data centre BTS (no occupancy risk) which should contribute positively to the portfolio.

We have revised our FY18e/FY19e revenue estimates 1.7%/3.9% higher than previous. DPU estimates for FY18e/FY19e have been raised 3.8%/9.2% higher.
Key positives are the higher proportion of Hi-Tech Buildings segment in the portfolio following the injection of the US data centres, and the relatively low gearing.
Estimated yield of 5.8% should be stable with some upside, but we find valuation un-compelling. Our target price represents an implied 1.48 times FY18e P/NAV multiple.

Mapletree Industrial Trust is trading above the peer average P/NAV multiple and at a lower 12M-trailing yield than the peer average.

Richard Leow CFA Phillip Securities | https://www.stocksbnb.com/ 2018-01-24

Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.15 Up 1.990