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Simons Trading Research

Author: simonsg   |   Latest post: Thu, 18 Apr 2019, 9:53 AM

 

Mapletree Industrial Trust - Delivering on High-Tech

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In Line, Adjusting DPUs, Maintain BUY

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)'s 3Q19 DPU of SGD3.07cts rose 6.6% y-o-y and was in line with the street; 9M19 was at 75% of full-year, driven by rising hi-tech contributions, which helped offset an uneven industrial sector recovery in Singapore against earlier supply-side pressures.
  • We see fundamentals as intact; Mapletree Industrial Trust’s DPUs are backed by improving leasing demand, growth visibility from its completed Kallang AEI, and a more resilient portfolio following its hi-tech asset investments and US diversification.
  • We have factored in its 18 Tai Seng deal while lowering its business parks contribution. Our DPU forecasts are largely unchanged, and our DDM-based Target Price stays at SGD2.20 (COE: 7.2%, LTG: 1.5%).
  • We continue to see strengths in its low 34.7% gearing, SGD600m-1.0b debt headroom and clear acquisition-growth potential could provide upside to our DPU CAGR forecast.
  • BUY.

Sector Recovery on Track, Rents Expected to Lag

  • Mapletree Industrial Trust's 3Q19 revenue and NPI rose y-o-y and q-o-q on the back of contribution from
    1. the HP build-to-suit (BTS) phase 1 after the expiry of its rent-free period,
    2. recently completed Sunview 1 BTS data centre, and
    3. 30A Kallang Place post-redevelopment.
  • Portfolio occupancy improved q-o-q from 86.7% to 88.2% with all segments reporting higher occupancies except for stack-up/ramp-up buildings (90.1% to 88.9%) and light industrial buildings (97.5% to 97.1%). Meanwhile, its US portfolio occupancy was unchanged at 97.4%.
  • WALE for its Singapore portfolio increased from 3.5 years to 3.6 years, with long-term leases signed at 30A Kallang Place.
  • Management is expecting the upwards adjustments in rents to lag for another two quarters, and will focus on tenant retention, which should see sequential improvement in occupancies.

High-tech AUM Rises With 18 Tai Seng

  • At its EGM on 22 Jan, Mapletree Industrial Trust has secured approval from its unitholders for the acquisition of 18 Tai Seng from its sponsor at SGD268.3m. The property is at 94.3% committed occupancy with WALE of 3.6 years, and built-in annual rental escalations for 95.7% of its leases.
  • Management had earlier shared that they are targeting a 6.8% NPI yield with a 3.5% assumption on borrowing cost. Leverage could rise to 38.7% if the deal is fully debt-funded, and we estimate it could add 2% to FY20 DPU.
  • Its high-tech properties, now at 42.7% of AUM, looks set to rise.

Source: Maybank Kim Eng Research - 23 Jan 2019

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