Mapletree Industrial Trust - DBS Research 2018-10-24: Withstanding The Test Of Time And Change


Mapletree Industrial Trust - Withstanding The Test Of Time And Change

  • Mapletree Industrial Trust's 1H19 DPU of 6.01 Scts in line with our estimate.
  • Well-timed projects drove earnings higher.
  • Inorganic growth from ongoing developments to boost portfolio quality and resilience.
  • BUY call and Target Price of S$2.22 maintained.

Maintain BUY with a Target Price of S$2.22.

  • We maintain our BUY call and Target Price of S$2.22 on Mapletree Industrial Trust (MINT). We believe MINT can continue to maintain its current valuations given its ability to deliver steady earnings, a valued trait in the REIT space.
  • Mapletree Industrial Trust’s conservative gearing of c.35% (see-through basis) offers financial capacity for more inorganic growth surprises.

Where We Differ: Diversity is the right strategy.

  • We are firm believers of Mapletree Industrial Trust’s overseas ventures and gather that investors will continue to accord the REIT with strong valuations given its ability to offer “strong certainty of growth”.
  • The manager’s well-timed acquisitions and completions of development projects underpin a steady growth profile and more importantly, a constant upgrade and refresh of the portfolio that is resistant to business cycle fluctuations.

Steady 1H19 results; project completions pull results ahead.

  • Mapletree Industrial Trust delivered 1.5% y-o-y growth in 1H19 DPU, driven mainly by contribution from past and recently completed acquisitions and developments.
  • The pipeline remains strong, led by Kallang Way and the planned development of a high-specification industrial property in Tai Seng, which drive earnings higher in FY20-21 onwards.
  • The manager also reinstated a dividend reinvestment program (DRP) which historically had strong take-up rates from unitholders, which would enable Mapletree Industrial Trust to pare down debt over time.


  • Mapletree Industrial Trust’s resilience is a value trait in this market but this has yet to be reflected in its current share price. We maintain our BUY call and Target Price of S$2.22 based on DCF.

Key Risks to Our View:

  • Rising interest rates. An increase in refinancing rates will be negative to distributions. However, we note that Mapletree Industrial Trust has minimised this risk by hedging c.74% of its borrowings into fixed rates.

WHAT’S NEW - Timely project completions drove earnings

1HFY19 results in line with expectations.

  • Mapletree Industrial Trust reported 1.3% and 0.8% rise in revenues and net property income (NPI) to S$183.7m and S$140.0m respectively. This was mainly due to higher contribution from HP built-to-suit project (Phase2), 30A Kallang Place and the recently completed development of Mapletree Sunview 1. This offset the higher pre-termination compensation received from tenants in 1H18 and lower occupancy (86.2% in 1H19 vs 87.8% in 1H18) in Singapore.
  • Expenses increased by S$113.6m, up 6.2% y-o-y, translating to DPU of 6.01Scts (2Q19 DPU of 3.0 Scts).
  • For 2Q19, topline and net property income have been 3.1% higher.

Operational outlook still challenging but should start bottoming out by FY19.

  • During the quarter, Mapletree Industrial Trust reported negative rental reversions to the tune of 86.2%. This was mainly due to the contribution of the recently completed Mapletree Sunview 1 and 7 Tai Seng, where tenants are in the process of vacating the premises due to the planned conversion by 89.3%.
  • The manager’s leasing strategy remains flattish or with a negative bias in 2H19, we believe that negative rental reversionary trends are likely to end of FY19.

Back filling of vacated space in The Strategy taking slightly longer than previously thought.

  • The take-up rate for vacated space by Johnson & Johnson at The Strategy improved slightly to c.40% (vs 23% a quarter ago).
  • While leasing momentum has improved, the manager cautions that competition remains high in the vicinity across various buildings at International Business Park (IBP) while demand from the manufacturing/oil & gas sectors remains muted for now.

Strong take-up at 30A Kallang Way estimated to deliver ROI of 8.0%.

  • The take-up rate at Kallang Way continues to improve significantly from c.44% in 1Q19 to 75% in 2Q19. Rents achieved remain in the S$3.50-S$3.80 psf range.
  • Mapletree Industrial Trust is projected to deliver a return of close to 8.0% when the property is fully leased, estimated by the end of FY19.

Development of 7 Tai Seng into a high spec property to underpin earnings trend in the medium term.

  • The manager will soon start the redevelopment of 7 Tai Seng Road into a term of 25 years, offering income visibility.
  • We estimate a ROI of c.6.3% for this property when completed in 2H19.

Dividend reinvestment program reinstated.

  • A conservative strategy has led to a gearing level that remains a very manageable c.35%.
  • The manager has proposed the reinstatement of the counter. Take-up rates have ranged between 3%-4%, which if achieved, will act as an avenue for any opportunistic acquisitions in the medium term.
  • We remain positive that Mapletree Industrial Trust offers projects and developments.
  • BUY call and Target Price of S$2.22 maintained.

Derek TAN DBS Group Research | Mervin SONG CFA DBS Research | Carmen Tay DBS Research | https://www.dbsvickers.com/ 2018-10-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.220 SAME 2.220