Mapletree Industrial Trust - CGS-CIMB Research 2019-01-23: Trading Rents For Improving Occupancy


Mapletree Industrial Trust - Trading Rents For Improving Occupancy

  • Mapletree Industrial Trust's 3QFY3/19 DPU of 3.07 Scts was in line with our and consensus forecasts, driven by earnings from 30A Kallang Place and Mapletree Sunview 1.
  • Thanks to attractive rental rates for tenants, Mapletree Industrial Trust's 3QFY19 occupancy growth reversed downtrend in 1QFY18-2QFY19.
  • Maintain ADD call with a Target Price of S$2.13.

3QFY3/19 results in line

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)'s 3QFY19 DPU of 3.07 Scts (+6.6% y-o-y) was in line, forming 26%/25% of our/Bloomberg consensus FY19F forecasts. This was due to increased earnings contribution from the newly-redeveloped 30A Kallang Place and full quarter’s contribution from Mapletree Sunview 1. These were offset by higher borrowing costs to fund the aforementioned two properties and higher management fees due to larger portfolio size.
  • For 9M19, Mapletree Industrial Trust's DPU of 9.08 Scts (+3.2% y-o-y) comprised 75% of both our and consensus FY19F estimates.

Occupancy reversed downtrend despite challenging environment

  • Portfolio occupancy of 87.7% in 3QFY19 (86.2% in 2QFY19) reversed the downtrend seen in the past six quarters (1QFY18-2QFY19). This was due to strategic moves by the management to shore up occupancy by offering attractive rental rates to tenants. Accordingly, gross rental rate fell to S$2.04 psf/month ($2.05 psf/month in 2QFY19).
  • Singapore portfolio’s weighted lease expiry increased to 3.6 years (3.5 years in 2QFY19) due to the start of long-term leases at 30A Kallang Place.

Filling up vacancies in newly redeveloped property

  • The newly-redeveloped 30A Kallang Place secured 89% commitment in 3QFY19, with actual occupancy of 38.6% vs. c.20% in 2QFY19. We expect committed occupancy to largely translate into actual occupancy by Mar 2019.
  • Rental rates between S$3.50- S$3.80 could provide upside to revenue from hi-tech segment, which recorded passing rents of S$2.70.

Balance sheet remains robust

  • In 3QFY19, Mapletree Industrial Trust's gearing and borrowing costs improved q-o-q to 34.7% (35.1% in 2QFY19) and 2.9% (3.0% in 2QFY19), respectively, due to the expiry of hedges.
  • Foreign exchange hedging increased as 88% (76% in 2QFY19) of net US$ income was hedged in S$.
  • Mapletree Industrial Trust will continue to apply the Distribution Reinvestment Plan (DRP) this quarter to strengthen its balance sheet.

Maintain ADD with a Target Price of S$2.13

  • Maintain ADD and increase our DDM-based Target Price to S$2.13 as we roll over to end-FY20F valuations.
  • We continue to like Mapletree Industrial Trust for its visible DPU growth from redevelopments and acquisitions, as well as its stable and resilient portfolio; only 2.3% of leases are due for renewal in FY19F.
  • Downside risks are slower recovery of industrial rents and the inability to fill vacancies from large tenant exits.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | 2019-01-23
SGX Stock Analyst Report ADD MAINTAIN ADD 2.13 UP 2.100