Mapletree Industrial Trust - CGS-CIMB Research 2018-07-25: Growth Momentum Intact

Mapletree Industrial Trust - CGS-CIMB Research 2018-07-25: Growth Momentum Intact MAPLETREE INDUSTRIAL TRUST SGX:ME8U

Mapletree Industrial Trust - Growth Momentum Intact

  • Mapletree Industrial Trust’s 1QFY3/19 DPU of 3 Scts was in line with our estimate at 25% of our FY19 forecast.
  • Singapore occupancy fell to 87.8% with lower occupancy at flatted factories, hi-tech and stake-up/ramp-up properties.
  • Completion of Mapletree Sunview 1 and recent acquisition of 7 Tai Seng Drive for upgrading into a hi-tech property should extend income growth visibility.
  • We maintain our ADD call with a slightly higher target price of S$2.13.

1QFY3/19 results summary

  • Mapletree Industrial Trust’s 1QFY3/19 DPU of 3 Scts was 1.7% higher y-o-y, supported by revenue contribution from HP Phase 2, pre-termination compensation sum from HGST Singapore and JV contributions from its share of US data centre portfolio, partly offset by lower occupancies flatted factories, business parks and stack up/ramp up properties and higher interest expense as a result of increased borrowings. 
  • 1Q DPU was in line with our expectations, making up 25% of our FY19 and consensus forecast.

~ ~ Where SG investors share

Average portfolio occupancy slipped to 88.3%

  • Mapletree Industrial Trust’s overall portfolio occupancy fell to 88.3% in 1Q, dragged by lower occupancy at the Singapore portfolio at 87.8% (-1.8% pts q-o-q). Flatted factories, hi-tech buildings and stack-up/ramp-up properties reported lower take up during the quarter. 
  • US data centres reported unchanged occupancy of 97.4%. Flatted factories and business parks space saw negative rental reversion of -3-5.1% for renewal leases. 
  • We expect challenging rental performance in the near term as new supply is expected to drop off in 2019.

New asset completions to provide income growth visibility

  • The leasing rate for 30A Kallang Place is at 43.8% with another 20% under negotiation. Mapletree Sunview 1, a BTS data centre, received Temporary Occupation Permit on 13 Jul 2018 and contributions are expected to commence from Sep 18. The property is 100% leased for an initial lease term of 10 years with staggered rental escalations and renewal options. 
  • Mapletree Industrial Trust also acquired 7 Tai Seng Drive in Jun 18 and will be upgrading it into a hi-tech building, scheduled to complete by 2H19. The property is 100% committed by an established ICT company for an initial term of 25 years with annual rental escalations.

Capital management

  • Mapletree Industrial Trust’s gearing has increased to 35% as at 1QFY19, with borrowing cost slightly higher q-o-q at 3%. About 78% of its borrowings are on fixed rates. It has S$225m of interest rate hedges expiring in 2HFY19. 
  • With a strong balance sheet, Mapletree Industrial Trust can continue to tap inorganic growth prospects. Its sponsor’s 18 Tai Seng remains an acquisition possibility (stabilise in mid-18) while it is also looking at more US data centres.

Maintain ADD

  • We tweak our FY19-21 DPU estimates post results and factor in accretion from the planned upgrading of 7 Tai Seng Drive. Accordingly, our DDM-based Target Price is raised slightly to S$2.13. 
  • Projected DPU CAGR of c.5% in FY19-21 is backed by a full year’s contribution from US data centres, ramp-up of 30A Kallang Place and contributions from Mapletree Sunview 1. In addition, about 81% of its FY19 net US dollar income stream is hedged into Singapore dollar, thus giving good income visibility. 
  • Key risk is a faster than expected hike in interest rates which could affect funding costs.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | 2018-07-25
SGX Stock Analyst Report ADD Maintain ADD 2.13 Up 2.120