Mapletree Industrial Trust - Maybank Kim Eng 2019-10-23: Another Hi-Tech High


Mapletree Industrial Trust - Another Hi-Tech High

In line, maintain BUY

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)’s 2Q20 DPU of SGD3.13cts, up 4.0% y-o-y, was in line with MKE and the street at 51% of our full-year, backed by rising hi-tech contributions.
  • We continue to favour its positive growth fundamentals, as its DPUs are supported by recovering leasing demand and growth visibility from a more resilient portfolio following its hi-tech asset investments and overseas diversification. Its yield has compressed following the strong rally. This, coupled with a stronger balance sheet post a recent SGD400m placement, should support further DPU-accretive deals.
  • Our DDM-based Target Price rises to SGD2.70 (COE: 6.4%, LTG: 1.5%). BUY.

Singapore occupancies have bottomed out

  • Revenue rose 10.5% y-o-y in 2Q20 while NPI jumped 13.3% y-o-y. Key drivers were new revenue contributions from
    1. 18 Tai Seng acquisition completed on 1 Feb 2019,
    2. 30A Kallang Place post-redevelopment, and
    3. Sunview 1 build-to-suit (BTS) data centre.
  • Its portfolio occupancy dipped slightly from 90.8% to 90.5, as Singapore occupancies fell from 90.5% to 90.2% with weaker occupancies for its light industrial buildings (down from 97.5% to 91.3%) and stack-up/ramp-up buildings (92.4% to 90.4%), while its US portfolio occupancy was unchanged at 97.4%.
  • Its hi-tech buildings segment was a bright spot with +2.6% rental reversion, but this was weaker for flatted factories (-2.2%) and business parks (-9.2%).
  • Management believes Singapore occupancies have bottomed out, and that rental recovery is slow but remains on track.

Hi-tech contributions to rise further

  • WALE has increased from 3.4 to 3.6 years with the contribution of the 25- year lease for 7 Tai Seng to Equinix with annual rental escalations.
  • We estimate this contributes ~5% of FY21 NPI. Its NPI from hi-tech buildings has jumped 39.9% y-o-y to 41% of total NPI contribution in 2Q20, and is expected to rise to 53% by FY22, on our estimates. About 7.2%-22.7% of its leases by gross rental income are due for renewal in FY20-21.

Balance sheet strong, potential deals for DPU upside

  • Mapletree Industrial Trust has raised SGD400.0m in new equity to partially fund the second US data centre acquisition, which will complete from late 2019-early 2020. Its low 29.2% gearing (~38% post-deal) should leave an estimated SGD1.0- 1.6b in debt headroom (at 40-45% limits) to support further deals.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-10-23
SGX Stock Analyst Report BUY MAINTAIN BUY 2.70 UP 2.500