Mapletree Industrial Trust - UOB Kay Hian 2019-01-24: 3QFY19 In Line

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - 3QFY19 In Line

Mapletree Industrial Trust’s strategy of growing Hi-Tech Buildings segment yielded positive results with DPU increasing 6.6% y-o-y.
Maintain HOLD for Mapletree Industrial Trust (entry price: S$1.78).

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)'s 9MFY19 DPU accounts for 72.1% of our full-year forecast. 3QFY19 DPU grew 6.6% y-o-y to 3.07 S cents.
Goss revenue and NPI increased 2.3% and 1.4% y-o-y respectively, driven by full-quarter contribution from Phase One of the build-to-suit project for HP Singapore after expiry of the rent-free period, as well as contributions from newly completed Mapletree Sunview 1 and 30A Kallang Place post-asset enhancement.
Occupancy for Singapore portfolio improved 1.5ppt q-o-q to 87.7%, driven by the high-tech buildings (+5.8ppt q-o-q) and business park buildings (+1.9ppt q-o-q).

Flatted factories (-1.5%), business parks (-6.4%), hi-tech buildings (-3.0%), stack-up/rack-up buildings (-3.6%) saw negative reversions in 3QFY19. Mapletree Industrial Trust has placed priority on improving occupancies and retaining tenants.
Nevertheless, Singapore portfolio saw average passing rents improved marginally by 1% q-o-q to S$2.04psf pm.
For the US portfolio, passing rents increased 1.5% q-o-q to US$2.04psf pm.

The Singapore portfolio has a WALE of 3.6 years, while the US portfolio has a WALE of 5.3 years.
The US portfolio accounts for 9.7% of the total portfolio value.

We estimate a potential debt headroom of S$465m (assuming maximum gearing of 45%). Mapletree Industrial Trust has 75.3% of its total debt in fixed rates (2QFY19: 78.3%). Interest coverage ratio was healthy at 6.5x.

Management noted that business sentiment among local companies has moderated due to trade tension, which could result in a slower pace of expansion for the global economy. Upcoming supply of competing industrial space could also moderate rents and occupancies. However, Mapletree Industrial Trust’s strategy of growing Hi-Tech Buildings segment has yielded positive results.
Growth in 3QFY19 was aided by development projects in Singapore and acquisition of 40% stake in 14 data centres located in the US. Growth in the wholesale data centre market is expected to be driven by demand from hyperscale cloud providers.

Mapletree Industrial Trust is supporting Equinix as it expands its presence in Singapore. It will upgrade the 7-storey high-tech building at 7 Tai Seng Drive into a data centre with a gross floor area of about 256,600sf by increasing power capacity and floor loading capacity, and adding telecommunication infrastructure.
The new facility - International Business Exchange (IBX) data centre-SG4 - will be Equinix’s fourth data centre in Singapore. Equinix is also a tenant at Mapletree Industrial Trust’s properties at 26A Ayer Rajah Crescent, Singapore and 180 Peachtree, Atlanta.

Maintain HOLD and target price of S$1.96, based on DDM (required return: 6.8% and terminal growth of 2.0%). Entry price is S$1.94.

Jonathan KOH UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-01-24

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.96 UP 1.940