• 2QFY19 DPU +0.3% YoY
• Negative rental reversions
• Lower FV to S$2.01

2QFY19 Results Within Our Expectations

Mapletree Industrial Trust (MIT) reported an inline set of 2QFY19 results, with gross revenue and NPI declining slightly by 0.4% and 0.1% YoY to S$92.2m and S$70.6m, respectively. This can be largely attributed to the pre-termination compensation of S$3.1m received from Johnson & Johnson (J&J) in 2QFY18. Excluding this, gross revenue would have increased by 3.1% YoY.

DPU rose 0.3% YoY to 3.01 S cents, as the S$4.0m distribution declared by its joint venture (40% interest in the data centre joint venture with its sponsor) helped to offset the lower NPI and higher borrowing costs. If we exclude the J&J compensation as mentioned earlier, MIT’s 2QFY19 DPU would have seen an improvement of 6.6% YoY, based on our estimates.

For 1HFY19, MIT’s NPI was up 0.8% to S$140.0m and this formed 50.0% of our FY19 forecast. DPU of 6.01 S cents represented an uptick of 1.5% and accounted for 49.3% of our full-year projection.

Weaker Occupancy and Rental Reversions

Operationally, weakness in occupancy was seen at MIT’s Singapore portfolio, as this came in at 86.2%, versus 87.8% as at end-1QFY19. This was mainly driven by higher vacancies at its Flatted Factories (-1.2 ppt QoQ to 85.9%) and Hi-Tech Buildings (-4.3 ppt QoQ to 84.4%).

Occupancy for its U.S. portfolio held firm at 97.4%. Rental reversions for renewal leases in Singapore came in negative for all its business segments in 2QFY19: -3.2% for Flatted Factories, -4.3% for Hi-Tech Buildings, -3.7% for Business Park Buildings and -4.1% for Stack-Up/Ramp-Up Buildings. There were no renewal leases for its Light Industrial Buildings.

Moderating Our Forecasts

Looking ahead, MIT’s Mapletree Sunview 1 data centre project will have a full-quarter of contribution from 3QFY19, while its 30A Kallang Place has increased its committed occupancy to 75.0% (1QFY19: ~43.8%), with most leases to commence by 4QFY19.

Notwithstanding this, we see the need to moderate our occupancy projections from FY20F amid the current macroeconomic uncertainties. We also raise our finance costs assumption. Our FY19 DPU forecast remains intact but our FY20 forecast is lowered by 3.5%. Our DDM-derived fair value estimate drops from S$2.08 to S$2.01.

Source: OCBC Research - 24 Oct 2018