Mapletree Industrial Trust - CGS-CIMB Research 2019-07-24: Stable Growth Profile Priced In


Mapletree Industrial Trust - Stable Growth Profile Priced In

  • Downgrade to HOLD from Add due to high valuations > 2 s.d. above historical 7-year average. Our Target Price rises to S$2.37 after factoring in Kolam Ayer.
  • 30A Kallang and 7 Tai Seng could contribute to future occupancy growth although discounts for displaced tenants at Kolam Ayer could keep rents low.
  • Mapletree Industrial Trust's 1QFY3/20 DPU of 3.10 Scts is in line, at 25% of our/consensus forecasts.

Downgrade to HOLD, with a Target Price of S$2.37

  • We downgrade MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) to HOLD due to high valuations of 1.5x P/BV and 5.6% FY3/20F yield which are > 2 s.d. above historical 7-year averages of 1.2x and 6.9%, respectively.
  • While we like Mapletree Industrial Trust for its visible growth profile, we think this has been priced in and investors could look for a lower entry point. Our FY20-22F DPU forecasts were adjusted - 1.9% to +1% after accounting for the redevelopment of Kolam Ayer and the earlier-than-expected completion of 7 Tai Seng.
  • Potential re-rating catalysts are accretive acquisitions and redevelopments.
  • Downside risks to our call include slower recovery in industrial rents and large tenant exits.

Occupancies could go up be lower for longer

  • Portfolio 90.5% (89.8% in 4QFY3/19), driven by the ramp in space tenant at Serangoon North. We think negative across all property types. We expect to see continued weakness in rental reversions due to the high base for rents signed 2-3 years ago.
  • Discounted rents given to existing tenants relocating from Kolam Ayer which will be recognised as new leases could also contribute to softer gross rental rate growth, in our view.

Eyeing more data

  • Management continued to express portfolio deals over piecemeal acquisitions.
  • We think acquisition of the remaining 60% stake in its 14 US- based data centres is a low hanging fruit although this would depend on the sponsor’s own timeline. We think the deal could be worth more than c.US$450m (it paid c.US$300m for the initial 40% stake) given the cap rate compression in US data centres.

1QFY3/20 DPU in line at 25% of our/consensus forecasts

  • Mapletree Industrial Trust's 1QFY3/20 DPU of 3.10 Scts (+3.3% y-o-y, +0.6% q-o-q) was in line at 25% of our and Bloomberg consensus' FY3/20 forecasts. The improved performance was largely driven by new contributions from 18 Tai Seng, 30A Kallang Place and Mapletree Sunview 1.
  • The y-o-y increase in larger unit base. The development of been Sep 2019F onwards.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-24
SGX Stock Analyst Report HOLD DOWNGRADE ADD 2.37 UP 2.320