Mapletree Industrial Trust - UOB Kay Hian 2019-04-24: 1Q19 Below Expectations

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - 1Q19 Below Expectations

Mapletree Industrial Trust’s 4QFY19 results were slightly below expectations. Its Singapore portfolio occupancy improved 2.1ppt q-o-q to 89.8% at the expense of incurring negative rental reversions for flatted factories and business parks.
Management remains cautious on outlook. Mapletree Industrial Trust completed the acquisition of 18 Tai Seng Street on 1 Feb 19 and is on track to complete upgrading of 7 Tai Seng Drive into a data centre in 2H19.

Maintain HOLD for Mapletree Industrial Trust (entry price: S$1.82). Maintain OVERWEIGHT on REITs.

Results were slightly below our expectations with FY19 DPU accounting for 96.5% of our full-year forecast. 4QFY19 DPU grew marginally by 4.4% y-o-y to 3.08 S cents.
During the quarter, gross revenue and NPI increased 9.3% and 11.7% y-o-y respectively, driven by contributions from development projects (Phase2 of build-to-suit project for HP Singapore at 1 and 1A Depot Close) and acquisitions (18 Tai Seng and Mapletree Sunview1) in Singapore.

Flatted Factories (-3.4%) and Business Parks (- 4.8%) saw negative reversions, while Hi-Tech Buildings (0.0%) and Stack-up/Rack-up Buildings (+0.9%) were flattish.
Singapore portfolio saw average passing rents improve marginally to S$2.07psf pm (+1.5% q-o-q), while US portfolio passing rents increased to US$2.06psf pm (+1.0% q-o-q).

All property segments registered higher occupancies (Hi-Tech Buildings +4.5ppt q-o-q to 94.7%, Stack-up/Ramp-up Buildings +2.7ppt to 91.6%). Mapletree Industrial Trust secured new leases from Ensign InfoSecurity and Diebold Nixdorf at 30A Kallang Place, resulting in significant improvement in occupancy for Hi-Tech Buildings. The only exception was the Business Park Buildings segment, where occupancy dipped 2.1ppt q-o-q to 79.4% due to Dell and Fuji Xerox downsizing their operations.
The US portfolio occupancy rate remained unchanged at 97.4%.

The Singapore portfolio had a WALE of 3.5 years, while the US portfolio had a WALE of 5.0 years. The US portfolio accounted for 9.1% of the total portfolio value.

Mapletree Industrial Trust raised S$201m through a private placement on 11 Feb 19 to partly finance the acquisition of 18 Tai Seng. Thus, aggregate leverage ratio improved slightly by 0.9ppt q-o-q to 33.8% as at Mar 19. Management has suspended the application of dividend reinvestment plan (DRP).
Mapletree Industrial Trust has issued S$125m 10-year 3.58% fixed rate notes on 26 Mar 19. Thus, the weighted average tenor of debt has improved from 3.1 to 4.4 years. Interest coverage ratio remains healthy at 6.5x.

Management has a cautious outlook and commented that business sentiment among local companies is weakening. Weaker external demand and slowdown in China are affecting the wholesale trade and manufacturing sectors, and have weighed down on the outlook for the region.
Upcoming supply of competing industrial space is also expected to moderate both the market rents and occupancy rates.

The 9-storey mixed-use industrial development with 443,810sf of office and retail spaces is centrally located in Paya Lebar iPark and has underground pedestrian link to Tai Seng MRT station. It has healthy occupancy of 95.1%.

Mapletree Industrial Trust 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 is on track for completion in 2H19 and will be Equinix’s fourth data centre in Singapore.

Mapletree Industrial Trust is keen to further expand in data centres in Singapore, including build-to-suit data centres customised to specific requirements of customers. Besides the US, Mapletree Industrial Trust is also open to investing in data centres located in gateway cities in Europe and the Asia Pacific region, such as Hong Kong, Japan and Australia.
On 26 Mar 19, Mapletree Industrial Trust has paid an advanced distribution of 1.71 S cents for the period from 1 Jan 19 to 19 Feb 19. Unitholders will receive another distribution of 1.37 S cents for the period from 20 Feb 19 to 31 Mar 19.

Maintain HOLD with a target price of S$1.94/share, based on DDM (required return: 6.8% and terminal growth of 2.0%).

Jonathan KOH UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-04-24

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.94 DOWN 1.960