Mapletree Industrial Trust - OCBC Investment 2018-04-25: In U.S. We Trust

Mapletree Industrial Trust - OCBC Investment 2018-04-25: In U.s. We Trust MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - In U.s. We Trust

  • Mapletree Industrial Trust (MIT) 4QFY18 DPU +2.4% y-o-y.
  • Full-quarter contribution from U.S.
  • Mixed outlook.

4QFY18 results within our expectations

  • Mapletree Industrial Trust (MIT) reported an in-line set of 4QFY18 results, with gross revenue and NPI both increasing 2.9% y-o-y to S$90.4m and S$67.9m, respectively. 
  • DPU rose 2.4% y-o-y to 2.95 S cents, supported by a S$3.2m distribution declared by its 40%-owned joint venture which owns a portfolio of 14 data centres in the U.S. This was the first full-quarter of contribution from the U.S. 
  • For FY18, MIT’s gross revenue jumped 6.7% to S$363.2m and formed 101.0% of our forecast. DPU grew 3.2% to 11.75 S cents and constituted 99.1% of our projection.

Some optimism but pockets of weakness exist

  • Rental reversions for renewal leases in Singapore appeared soft during 4QFY18, coming in negative for four out of its five segments (Flatted Factories -3.4%; Business Park Buildings -0.8%; Stack-Up/Ramp-Up Buildings -3.8%; Light Industrial Buildings -1.6%). Nevertheless, there were some positives in 4QFY18, as management achieved a high tenant retention rate of 83.8% and the outlook remains slightly more upbeat.
  • There are, however, still pockets of weakness in the market, partly due to supply pressures.

Focus on ramping up occupancy

  • Looking ahead at FY19, we believe management’s main focus would be to ramp up occupancy at its 30A Kallang Place property which was completed in Feb this year.
  • Committed occupancy stood at 40.2%, as at 31 Mar 2018. Signing rents of ~S$3.50-S$3.80 psf/month have tracked slightly above management’s expectations, and MIT is aiming to hit a committed occupancy of ~90% for this property around year-end. Another focus would be to continue backfilling the space vacated by Johnson & Johnson previously (currently 23% backfilled). 
  • Meanwhile, MIT highlighted that HGST, its ninth largest tenant, was looking to downsize its space requirements at one of MIT’s properties. Notwithstanding this setback, we note that HGST contributed only 1.1% of MIT’s gross rental income.
  • We lower our FY19 and FY20 DPU forecasts by 2.9% and 3.2%, respectively, largely on lower NPI and higher borrowing cost assumptions. However, our fair value is unchanged at S$2.06 as we roll forward valuations.

Wong Teck Ching Andy CFA OCBC Investment | 2018-04-25
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