Mapletree Industrial Trust - Maybank Kim Eng 2018-07-25: Higher On Hi-tech

Mapletree Industrial Trust - Maybank Kim Eng Research 2018-07-25: Higher On Hi-tech MAPLETREE INDUSTRIAL TRUST SGX:ME8U

Mapletree Industrial Trust - Higher On Hi-tech


1Q19 in line; DPU growth visibility; BUY

  • Mapletree Industrial Trust's 1Q19 DPU of S3.00cts, up 2.7% y-o-y, was in line with our estimates though ahead of the Street’s. This was driven by its rising hi-tech segment contribution even as Singapore occupancies dipped slightly on earlier supply pressures. 
  • Leasing demand remains strong, with growth visibility from completed Kallang AEI, and backed by a more resilient portfolio following hi-tech asset investments and US diversification in 4Q17. 
  • Low gearing, SGD700m of debt headroom and clear acquisition potential should provide upside to our 3-year 6.3% DPU CAGR forecast. We keep DPU and DDM-based SGD2.25 Target Price (WACC 7.2%, LTG 1.5%) unchanged. BUY.



Hi-tech contributions offset for lower occupancies

  • Revenue and NPI rose y-o-y and q-o-q from HP to 88.3%. 
  • While occupancy for its US portfolio was unchanged at 97.4%, Singapore occupancies dipped from 89.6% to 87.8% with higher vacancies across most segments. Management attributed this to a large industrial supply and an uneven recovery in the manufacturing sector, even as its average passing rents rose 0.5% q-o-q and 3.6% y-o-y. 
  • Pre-commitments at 30A Kallang Place after AEI rose to 43.8% from 40.2% as Johnson & Johnson vacancy.


Pressing on with acquisitions and BTS

  • Mapletree Industrial Trust (MINT) continues to eye acquisitions - mainly its sponsor’s 60% interest in the US data-centre portfolio and 18 Tai Seng in Singapore which has reached strong occupancy. Management also aims to expand its development/BTS projects in Singapore, to 1-2 a year. 
  • Divestment opportunities are less for MINT relative to its peers as its portfolio is concentrated in multi-tenanted properties, while demand has been biased towards single-user assets. 
  • Aggregate leverage increased to 35.0% as at end-June with its 7 Tai Seng acquisition, and we estimate SGD0.7-1.0b of debt headroom to support potential deals.


Swing Factors 


Upside 

  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy. 
  • Better-than-anticipated rental reversion trend. 
  • Accretive acquisitions. 

Downside 

  • Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates. 
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate. 
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations 





Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-07-25
SGX Stock Analyst Report BUY Maintain BUY 2.250 Same 2.250



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