Mapletree Industrial Trust - UOB Kay Hian 2018-10-25: 2QFY19 In Line

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - 2QFY19: In Line

Results came in line with expectations.
Mapletree Industrial Trust (MINT) Continues to face challenges in backfilling spaces, from the exit of major tenants.
Maintain HOLD with a target price of S$1.94. Entry price: S$1.76.

Results in line with expectations; maintain HOLD with unchanged target price of S$1.94, based on DDM (required rate of return: 6.9%, terminal growth: 2.0%).
Mapletree Industrial Trust reported a 2QFY19 DPU of 3.01 S cents, up 0.3% y-o-y. Both gross revenue and NPI declined by 0.4% y-o-y and 0.1% y-o-y respectively, due to the effect of the pre-termination compensation received from Johnson & Johnson (J&J) in 2QFY18 (without which gross revenue would be higher by 3.1%). Although Singapore portfolio occupancy was lower, this was partly offset by new contributions form Phase Two of the built-to-suit (BTS) project from JP Singapore, Mapletree Sunview 1 and 30A Kallang Place.

Results are in line with expectations with 1HFY19 DPU coming in at 51% of our full-year forecast.

Overall occupancy decreased 867% in 2QFY19 (vs 883% in 1QFY19), due to Singapore Management. Singapore occupancies over the major tenants, such as J&J 160,400,000 sf. Backfilling challenge have filled the spaces ready.

The Singapore portfolio has a WALE of 35 years, while the US Portfolio has a WALE of 55 years as of Q18.
The US portfolio accounted for 97% of the portfolio (vs 9.5% in 1QFY19), largely due to exchange US dollar.

Singapore portfolio saw average passing rents rise 1.5% qoq, from S$2.02 psf pm to S$2.05 psf pm.
The US portfolio asking rents also increased by 0.5% q-o-q, from S$2.01 psf pm to S$2.02 psf pm.

Flatted factories (-3.2%), business parks (-3.7%), hi-tech buildings (-4.3%), stack-up / rack-up buildings (-4.1%) all saw negative reversions. However, the average passing rent rose by 1.5% q-o-q to S$2.05 psf pm for Singapore portfolio.
Despite negative rent reversions, the Singapore portfolio saw an increase in passing rents by 1.5% q-o-q to S$2.05 psf pm (and the US portfolio by 0.5% q-o-q to S$2.02 psf pm), due to expiration of the rent-free period on a BTS project project for HP Singapore, as well as step-ups (averaging c.2%) in rents for most BTS leases.

On our estimates, Mapletree Industrial Trust still has a potential debt headroom of S$582m (assuming maximum gearing of 45%). Mapletree Industrial Trust also has 78.3% of its total debt in fixed rates (vs 77.9% in 1QFY19).

Management noted that business sentiments for SMEs in Singapore remained positive, although the mood is cautious as trade tensions continue to simmer. Management has not seen any pre-emptive steps taken by tenants to consolidate/downsize operations. Some of the MNCs they engaged in also have contingency plans in-place, which are nimble enough to re-work production plans (or supply chains).
Management also sees some short-term benefits (such as more trade between China and other parts of the world).

Our valuation is based on DDM (required rate of return: 6.9%, terminal growth: 2.0%). Entry price: S$1.76.

Peihao LOKE UOB Kay Hian Research | Andrew CHOW CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-10-25

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.940 SAME 1.940