Mapletree Industrial Trust - DBS Research 2019-01-23: Re-inventing And Re-investing Strategy Starting To Bear Fruit!


Mapletree Industrial Trust - Re-inventing And Re-investing Strategy Starting To Bear Fruit!

  • Mapletree Industrial Trust's 3Q19 results in line with expectations.
  • Occupancy rebounded, should allay concerns of more downside to earnings.
  • Ample debt headroom to acquire 18 Tai Seng; estimates yet to reflect this.
  • Maintain BUY and S$2.22 Target Price.

What’s New

9MFY19 results in line with expectations.

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) reported 1.6% and 1.1% rise in revenues and net property income (NPI) to S$277.3m and S$211.9m 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 higher pre-terminations received from tenants in 9M18 and lower occupancy YTD in Singapore.
  • Expenses increased by 3.6% due to higher property taxes and maintenance, offset by lower marketing commissions and utilities. All-in funding cost was stable at c.2.9% (vs 3.0% in 2Q19).
  • Amount available for distribution for 9M19 was S$171.8m, up 7.1% y-o-y, translating to a DPU of 9.08scts (3Q19 DPU of 3.07 Scts). The performance met 76% of our full year forecasts.

Occupancy rate inches higher; reversing quarters of declines.

  • During the quarter, Mapletree Industrial Trust continued to see negative rental reversions across most property segments but we note that occupancy rates picked up slightly to 87.3% (vs 86.2% in 2Q19). This was mainly to contribution of the recently completed Mapletree Sunview 1 and 30A Kallang Way, which have seen strong take-ups. The property at 30A Kallang Way is understood to be close to 89% pre-committed, a positive development.
  • In the quarter, we also saw a general improvement in occupancy rates across most of its industrial sub-segments, a positive sign in our view. While too early to call a sustained turnaround in our view, this data-point should allay concerns that occupancy rates will dip further given the uncertain macro climate. This implies that the manger’s strategy of maintaining occupancies in the midst of competition remains the right one.
  • While we project rental reversion rates to remain flattish or still with a negative bias in 2H19, we believe that the negative rental reversionary trends are likely to moderate in the coming quarters and should bottom out from the end of FY19.

No further back filling of vacated space at The Strategy.

  • The take-up rate for vacated space by Johnson & Johnson at The Strategy stayed at c.40% (similar to a quarter ago). The manager attributes this to the competition across various buildings at International Business Park (IBP) while demand from the manufacturing/oil & gas sectors remain muted for now.

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

  • The take-up rate at Kallang Way has improved significantly to c.89% in 3Q19 vs 75% in 2Q19. Our estimate of a return of close to 8.0% when fully leased remains intact.

Tenant at redevelopment of 7 Tai Seng revealed to be Equinix, a returning client.

  • The manager recently unveiled the tenant at 7 Tai Seng to be Equinix Singapore, an existing tenant which has “grown” its footprint together with Mapletree Industrial Trust. The property will see improvement works which include increasing power and floor loading capabilities and installing additional telecommunication infrastructure.
  • Equinix Singapore has committed for an initial term of 25 years, offering income visibility. We estimate an ROI of c.6.3% for this property when completed in 2H19.

18 Tai Seng acquisition approved.

  • Mapletree Industrial Trust has garnered a strong mandate from its unitholders for the planned purchase of 18 Tai Seng, a high-specification mixed-use industrial property, from its Sponsor. We have not priced in this acquisition, pending final funding mix. We will update our estimates post completion of the deal.
  • We remain positive that Mapletree Industrial Trust offers investors a stable yield with a certainty of growth, underpinned by strategically timed 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/ 2019-01-23
SGX Stock Analyst Report BUY MAINTAIN BUY 2.220 SAME 2.220