Mapletree Industrial Trust - DBS Research 2019-04-23: Well-Timed Acquisitions Drive Earnings To New Record

SGinvestors.io

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Well-Timed Acquisitions Drive Earnings To New Record

• Mapletree Industrial Trust's 4QFY19 DPU of 3.08Scts in line with expectations.
• Occupancy rates improving on the back of Manager’s defensive strategy.
• Development of data-center at 7 Tai Seng to drive earnings in the medium term.
• Comfortable gearing level to undertake acquisitions.

What’s New

Mapletree Industrial Trust (MINT): 4QFY19 earnings hit another record; benefiting from well-timed acquisitions.

• In a series of well-timed acquisitions and development completions, MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) delivered another record quarterly DPU of 3.08 Scts in 4QFY19, which was against all odds given competition from supply. Topline and net property income grew by 9.3% and 11.7% to S$98.8m and S$75.9m respectively.
• Main contributors to the stronger performance came from
  1. new contribution from 18 Tai Seng, acquired during the quarter,
  2. stronger physical occupancy at 30A Kallang Place (c.86% in 4Q18),
  3. completion of Mapletree Sunview 1.
  These more than offset the lower occupancies at the flatted factories and stack-up/ramp-up properties.
• On a full year basis, revenues and net property income grew by 3.5% and 3.7% respectively, to S$376.1m and S$287.8m.
• Interest costs in 4QFY19 increased by 12% y-o-y on the back of an expanded portfolio while interest rate was stable at 3.0% (vs 2.9% in 4QFY18).
• Net profit from associates increased 17.9% y-o-y to S$3.7m but fair value gains increased at a more moderate pace in 4QFY19.
• As a result, distributable income grew by 8.0% y-o-y to S$59.9m; DPU increased by a smaller 4.4% due to an enlarged share base.

Operational metrics: Occupancy rates holding up.

• Portfolio occupancy rates increased to 90.2% (Singapore: 89.8% in 4QFY19; 87.7% in 3QFY19) while occupancy rates in the US remained stable at 97.4%. The improved occupancy rates came from Hi-Tech Buildings as the physical occupancy rates for 30A Kallang Place increased significantly to c.86% vs c.39% a quarter ago. Committed occupancy rates continued to improve, reaching c.93%.
• Occupancy at its business parks dipped q-o-q from 81.5% to 79.4%, mainly due to a return of space at The Strategy but we understand that Mapletree Industrial Trust has completed its rationalisation exercise at the property.
• Occupancy rates improved marginally at the Flatted Factories (87.9% in 4QFY19; 86.4% in 3QFY19) and Stack-Up/Ramp-Up buildings (91.6% in 4QFY19; 88.9% in 3QFY19).

Rental reversions were mixed.

• Reversions remained mixed as expected, with most industrial sub-segments recording flattish or slight negative rental reversions in the quarter, but reversion at Stack-Up/Ramp-Up buildings was slightly higher.

Balance sheet metrics strong; more headroom for acquisitions.

• The Singapore portfolio recorded a net fair value gain of S$30.8m. The overall value of the portfolio increased by S$428m due to inclusion of 18 Tai Seng and capitalised cost from the ongoing construction of 7 Tai Seng. NAV increased marginally to S$1.51 as a result.
• Gearing increased slightly to c.33% but is still within Manager’s comfortable level, and provides the REIT with financial flexibility to undertake more acquisitions.
• The Manager announced that the dividend reinvestment plan is in place for 4QFY19, but will be discontinued thereafter.

Derek TAN DBS Group Research | Mervin SONG CFA DBS Research | Carmen Tay DBS Research | https://www.dbsvickers.com/ 2019-04-23

SGX Stock Analyst Report BUY MAINTAIN BUY 2.300 SAME 2.300