Mapletree Industrial Trust - DBS Research 2018-07-25: Hitting The Right Notes

Mapletree Industrial Trust - DBS Group Research Research 2018-07-25: Hitting The Right Notes MAPLETREE INDUSTRIAL TRUST SGX:ME8U

Mapletree Industrial Trust - Hitting The Right Notes

  • Mapletree Industrial Trust's 1QFY19 DPU of 3.0 Scts (+2.7% y-o-y; 1.7% q-o-q) in line with estimates.
  • Operational results stable; back-filling for space at The Strategy and Kaki Bukit property to watch.
  • Rental reversionary trends negative but expected to turn around by year-end.
  • Development of 7 Tai Seng to underpin medium-term growth.

What's New

1QFY19 results in line with expectations.

  • Mapletree Industrial Trust (MINT) reported a 3.0% and 1.9% rise in revenues and net property income (NPI) to S$91.5m and S$69.5m respectively. This was mainly due to higher contribution from HP built-to-suit project (Phase2) and a one-off pre-termination compensation from HGST Singapore. This partially offset lower occupancies portfolio wide (87.8% vs 89.6% in 4Q18). Expenses increased by 6.8% largely due to higher property taxes and maintenance, offset by lower marketing commissions and utilities.
  • All-in funding cost remained stable at c.3.0% (vs 2.9% in 4Q18). Amount available for distribution for 1Q19 was S$56.9m, up 7.6% y-o-y translating into a DPU of 3.0 Scts. Gearing level remains steady at c.35% and is within the comfortable range but has significant headroom to undertake acquisitions.

Operational outlook still challenging but should start bottoming out by end-2018.

  • The manager continues to see near-term challenges as tenants are still looking to right-size real estate needs and competition remains high in the near term. Rental reversions are fairly mixed this quarter, with a mix of positives in the stack-up and ramp-up space while flatted factories remain negative (c.-5.0%).
  • While we project rental reversion rates to remain flattish or still with a negative bias in the near term, we believe that the negative rental reversionary trends are likely to moderate in the coming quarters but should bottom out from the end of 2018 as supply risks taper.

Back-filling of vacated space.

  • The take-up rate for vacated space by Johnson & Johnson at The Strategy remains at c.23% due to the competition for tenants in the vicinity given vacancy at International Business Park (IBP). The manager has also secured a small commitment for the space vacated by HGST at Kaki Bukit. The take-up rate at Kallang Way continued to improve to c.44% from c.40% a quarter ago.

Development of 7 Tai Seng into a high-spec property to underpin earnings trend.

  • The manager recently completed the purchase of 7 Tai Seng Road for S$68m and will spend S$95m (an additional S$27m) to improve the specifications of the property. These improvement works include increasing power-and floor-loading capabilities and installing additional telecommunication infrastructure. 
  • The tenant (from the IT industry) has committed to an initial term of 25 years, offering income visibility. We estimate an ROI of c.6.3% for this property when completed in 2H19.

Derek TAN DBS Group Research Research | Carmen TAY DBS Research | Melvin SONG CFA DBS Research | 2018-07-25
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