Mapletree Industrial Trust - DBS Research 2019-07-24: Portfolio Delivers Steady Returns


Mapletree Industrial Trust - Portfolio Delivers Steady Returns

  • Operating metrics remain steady despite macro uncertainties.
  • 7 Tai Seng repositioned as a data center, to start contributing in 3QFY20.
  • Kolam Ayer redevelopment to drive longer term upside.
  • Maintain BUY, Target Price S$2.50.

What’s New

Mapletree Industrial Trust (MINT): 1Q20 earnings inches higher; benefiting from strong operating metrics

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) delivered another record quarter, with DPS of 3.10 Scts in 1QFY20, in line with our expectations. Topline and net property income grew by 8.8% and 12.2% to S$99.6m and S$77.9m respectively. Main contributors to the stronger performance came from:
    1. fresh contribution from 18 Tai Seng, acquired during the quarter,
    2. stronger occupancy rate at 30A Kallang Place,
    3. completion of the development of datacenter, Mapletree Sunview 1.
  • Interest expense increased by 9.1% y-o-y on the back of an expanded portfolio while interest cost was stable q-o-q at 3.0%. Operating expenses grew by a modest 1.7% on the back of lower maintenance costs, offset by higher property taxes for 18 Tai Seng and marketing commissions.
  • Distributable income was 11.1% y-o-y higher at S$63.2m while, DPU increased by a smaller 3.3% due to an enlarged share base.

Operational metrics: Occupancy rates holding up as managers forego reversions to retain tenants.

  • Portfolio occupancy rate increased to 90.8% (Singapore: 90.5% in 1QFY20; 89.8% in 4QFY19) while occupancy rate in the US was stable at 97.4%. The improved occupancy rates came from Hi-Tech Buildings as the occupancy rate for 30A Kallang Place is now higher than c.86% a quarter ago. We understand that the property (30A Kallang Place) is now 100% committed and will start contributing positively going forward.
  • For renewals, rental reversions were generally negative across its various asset classes (-4.0% to -9.7%) in the quarter, which was mainly tactical in nature as the manager took a strategy to maintain occupancy rates, offering discounts to retain tenants.
  • We note that the rental reversion at its Hi-Specifications segment was 8.2% lower, which mainly came from a more attractive rent on a psf basis offered to a tenant at its Serangoon North property which had taken up the vacant space. The Stack-up/ramp-up property segment also saw a dip in reversions due to lower rents for larger spaces leased.

Balance sheet metrics strong; more headroom for acquisitions.

  • Balance sheet remains solid with a low gearing of 33.4%, within the manager’s comfortable level. This provides the REIT with more financial flexibility to undertake more acquisitions and developments.
  • The planned redevelopment of Kolam Ayer Cluster 2 will bring gearing higher to c.36%-37% over the coming two financial years, which remains comfortable in our view.

BUY call is maintained.

  • We believe that Mapletree Industrial Trust’s earnings profile will continue to improve going into the remainder of the financial year and see continued investor interest in the stock. Target Price of S$2.50 and BUY call is maintained.

Derek TAN DBS Group Research | Carmen TAY DBS Research | Mervin SONG CFA DBS Research | https://www.dbsvickers.com/ 2019-07-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.500 SAME 2.500