A Strong Quarter, With Growth Momentum

• MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)’s 1Q20 DPU of SGD3.10cts, up 3.3% y-o-y, was in line at 25% of our full-year, and likely ahead of the street; backed by stronger Singapore portfolio occupancies and rising hi-tech contributions.
• We continue to favour Mapletree Industrial Trust for its positive growth fundamentals, as DPUs are supported by recovering leasing demand and growth visibility from a more resilient portfolio following its hi-tech asset investments and US diversification.
• Our forecasts and DDM-based Target Price remain unchanged, at SGD2.40 (COE: 6.7%, LTG: 1.5%).
• Catalysts from acquisition-growth given a low 33.4% gearing and SGD0.7-1.2b of debt headroom. BUY.

In Line, Fundamentals Intact

• Mapletree Industrial Trust's 1Q20 8.8% y-o-y and 12.2% y-o-y from
  1. 18 Tai Feb 2019,
  2. 30A Place post-redevelopment, and
  3. Sunview centre.
• Portfolio occupancy improved from 90.2% to 90.8%, as occupancy in Singapore rose from 89.8% to 90.5%, led by its high-tech buildings, which jumped from 94.7% to 97.1%.
• Mapletree Industrial Trust has received its temporary occupation permit (TOP) on 3 Jul for 7 Tai Seng, following upgrading works into a data centre for Equinix on a 25-year lease term with annual rental escalations, which we estimate could contribute 5.2% to its FY21 NPI.
• Management is optimistic on leasing activity for the 12.3% of its leases by gross rental income due for renewal in FY20, with rents likely to bottom out in the coming 1-2 quarters against easing supply.

DPU High-tech

• Its US space, as leased supply and demand (by operational sf) are expected to rise at 4.6% and 7.6% CAGR between 2017-23.
• With gearing at 33.4% and about SGD0.7-1.2b in debt headroom, we expect incremental data centre investments, possibly third-party deals in Europe and Asia, to provide DPU growth optionality and thus implying upside risks.

Source: Maybank Kim Eng Research - 24 Jul 2019