Mapletree Industrial Trust - CIMB Research 2018-04-25: 4QFY18 Growth Trajectory Intact

Mapletree Industrial Trust - CIMB Research 2018-04-25: 4qfy18 Growth Trajectory Intact MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - 4qfy18 Growth Trajectory Intact

  • Mapletree Industrial Trust's FY18 DPU of 11.75 Scts (+3.2% y-o-y) was in line with consensus and our expectation, at 101% of our FY18F. 4QFY18 DPU of 2.95 Scts (+2.4% y-o-y) was at 25%.
  • Growth was driven by contribution from the BTS for HP and contribution from Mapletree Industrial Trust’s 40% stake in 14 data centres in the US.
  • AEI at 30A Kallang Place was completed on 13 Feb. The manager is signing S$3.50-3.80 psf pm for the property, and it has secured c.40% commitments.
  • Backed by full-year contribution from US data centre acquisition, ramp-up of 70A Kallang Place and BTS data centre in FY20F, we project 2-year DPU CAGR of 4.6%.
  • ADD maintained. Downside risks include higher rate hikes and valuation risk.

Results summary: DPU and NAV growth

  • Mapletree Industrial Trust's 4QFY18 DPU grew 2.4% y-o-y, driven by contribution from the build-to-suit (BTS) for HP as well as contribution from its 40%-stake in 14 data centres in the US. This was partially offset by lower portfolio occupancy. 
  • Mapletree Industrial Trust’s Singapore portfolio increased by S$159.7m (revaluation gain of S$65.5m and capitalised cost of S$111.8m from development works); its US data centres registered an increase of US$7m in valuation vs. previous valuation in Sep 2017. 
  • NAV increased to S$1.47/unit (FY17: S$1.41).

Average portfolio occupancy decreased 0.5% pt q-o-q to 90%

  • Singapore portfolio occupancy fell 0.5% pt q-o-q to 89.6% due mainly to an increase in leasable area upon completion of the asset enhancement initiative (AEI) at 30A Kallang Place on 13 Feb. 
  • The manager is signing S$3.50-3.80 psf pm for the Hi-Tech building. It has secured c.40% commitments and the manager is targeting 90% committed occupancy by end-2018. Meanwhile, US portfolio occupancy remained stable at 97.4%.

Industry remains tepid

  • Flatted factories, stack-up/ramp-up and light industrial buildings saw negative 1.6-3.8% reversions for renewals. As supply drops off in 2019, we believe that dicey conditions could ease towards year-end. 
  • The Strategy signed a sizeable lease at S$3.12 psf pm (c.18% discount to Mapletree Industrial Trust’s business parks’ passing rent) as it sought to backfill the space vacated by J&J (c.160k sq ft; 23% has since been back-filled). Lastly, HGST could downsize at the Kaki Bukit cluster; in turn, this allows the possibility of redevelopment.

Capital management

  • Gearing improved to 33.1% (end-2017: 33.8%), with borrowing costs stable at 2.9% p.a. 85% of Mapletree Industrial Trust ’s borrowings is fixed/hedged. 
  • We note that FY18 borrowing costs increased c.25% y-o-y due largely to higher debt to fund the US data centres, higher hedged rates and interest for HP which is now being expensed, instead of being capitalised.

Growth trajectory intact; maintain Add

  • We decrease our FY19F-20F DPU by 1.3-1.4% as we factor in higher borrowing costs. Our DDM-Target Price accordingly dips to S$2.12
  • We forecast a 2-year 4.6% DPU CAGR through FY20F, backed by full-year contribution of the US data centres in FY19F, ramp-up of 70A Kallang Place in FY19F-20F and BTS data centre in FY20F. There would also be incremental contribution from HP. 
  • Meanwhile, sponsor’s 18 Tai Seng remains an acquisition possibility (stabilise in mid-18); Mapletree Industrial Trust is also looking at more US data centres.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | 2018-04-25
SGX Stock Analyst Report ADD Maintain ADD 2.12 Down 2.160