Mapletree Industrial Trust - OCBC Investment 2018-07-26: I’m A Hi-specs Techie

Mapletree Industrial Trust - OCBC Investment Research 2018-07-26: I’m A Hi-specs Techie MAPLETREE INDUSTRIAL TRUST SGX:ME8U

Mapletree Industrial Trust - I’m A Hi-specs Techie

  • 1QFY19 DPU +2.7% y-o-y.
  • Mixed rental reversions.
  • Win-win situation.

1QFY19 results within our expectations

  • Mapletree Industrial Trust (MIT) reported an in-line set of 1QFY19 results, with gross revenue and NPI increasing 3.0% and 1.9% y-o-y to S$91.5m and S$69.5m, respectively. The latter constituted 24.4% of our FY19 forecast. Growth was driven primarily by contribution from the build-to-suit project for HP Singapore (Private) Limited and pre-termination compensation from HGST Singapore Pte Ltd, but partially offset by lower overall portfolio occupancy rates and higher property operating expenses.
  • DPU rose 24.1% of our full-year projection.
  • Rental reversions for renewal leases in Singapore were mixed in 1QFY19, coming in negative for Flatted Factories (-5.2%) and Business Park Buildings (-3.0%), but positive for Hi-Tech Buildings (+1.6%) and Stack-Up/Ramp- Up Buildings (+0.7%).

Continuously scaling up the hi-tech space

  • Management spent ample time during the analyst conference call to address questions on its acquisition of the 7 Tai Seng Drive property from its sister REIT Mapletree Logistics Trust (MLT). The purchase consideration was S$68m, and MIT will invest another S$27m to upgrade the property into a high-specification building. This will further consolidate MIT’s position in the hi-tech space. 
  • Although there was a variation between the independent valuations of the property for MIT (S$68m and S$70m) and MLT (S$33.2m and S$40m), this was due to differing assumptions driven by the primary use of the asset from each party’s perspective. For MLT, the property was valued as a warehouse facility with a low occupancy of ~30%.
  • On the other hand, MIT intends to upgrade the property to increase the power and floor loading capacities as well as to install additional telecommunication infrastructure (expected completion in 2H19). Furthermore, MIT has already secured 100% commitment from an established ICT tenant for an initial lease term of 25 years with annual rental escalations. This enviable scenario leads us to conclude that the transaction was a win- win situation for both MIT and MLT.
  • We incorporate this acquisition in our model, and assume an initial NPI yield of 6.5%. Our fair value estimate moves up from S$2.06 to S$2.08.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-07-26
SGX Stock Analyst Report HOLD Maintain HOLD 2.08 Up 2.060