Mapletree Industrial Trust: Hi-Tech Buildings driving growth April 26, 2017 942

PSR Recommendation: NEUTRAL Status: Maintained
Target Price: 1.80
  • 4Q gross revenue and DPU in line with our forecast
  • FY17 gross revenue in line with our forecast and consensus expectation
  • FY17 DPU in line with our forecast, and exceeded consensus expectation by 3.5%
  • Portfolio weighted average rental reversion of -0.2% for the quarter


  • Leasing update on early-termination of J&J at The Strategy

As disclosed in the previous quarter, Johnson & Johnson (J&J) had confirmed it would be terminating its lease on September 30, 2017 (nine months early). The manager has not secured a tenant with a large space requirement to fill the vacancy. The S$3.1 million compensation for the early-termination covers only six months of rent. The manager is not optimistic of fully leasing out all of the space by 2018, even by various smaller tenants. The vacant space accounts for 28% of net leasable area (NLA) of The Strategy and 2.2% of portfolio gross rental income (GRI).

  • Outlook for the portfolio is stable; 28.2% of leases expiring in FY18

While the 28.2% level of expiries for FY18 is higher than subsequent years, there are no concentrated exposures, according to the manager. Weighted average lease expiry (WALE) of the portfolio has shortened quarter-on-quarter (q-o-q) to 3.1 years by GRI; and portfolio occupancy has improved q-o-q to 93.1% from 92.1%. There was some weakness in the Stack-up/Ramp-up Buildings and Light Industrial Buildings segments in terms of tenant retention, resulting in lower q-o-q occupancy. The manager shared that the tenants left mainly due to consolidation of operations elsewhere or downsizing of operations. We believe this is a reflection of industrialists managing their cost.

  • Data centre BTS to boost portfolio in High-Tech Buildings segment

The recently announced six-storey data centre build to suit (BTS) project will be developed at a cost of S$60 million. There is sufficient debt facilities and headroom for the project to be fully funded by debt, making it accretive. The project is expected to be completed in 2H CY2018. We do not see the project contributing materially to the portfolio that is now valued at S$3.7 billion. The GRI contribution only adds on ~1% to FY19e, by our estimates.

  • 30A Kallang Place AEI on track for completion in 1Q CY2018

As with the previous quarter, there has not been any pre-commitments, save for a childcare centre to serve as an amenity for the other tenants of the development. We have started to include a GRI forecast into our model, starting with 50% occupancy in 1QFY19 and ramping up to full occupancy by the end of FY19.

Downgrade to “Neutral” with higher target price of S$1.80 (previous: $1.74)

At 29.2% gearing, Mapletree Industrial Trust (MINT) has one of the lowest gearing within the S-REIT universe. Our target price represents an implied 1.3x FY18e P/NAV multiple. We believe the growth potential has already been adequately priced-in, resulting in our “Neutral” rating. However, long-term growth remains intact and investors should look to accumulate on temporary price weakness.


Relative valuation

MINT is trading above the peer average P/NAV multiple and at a lower 12M-trailing yield than the peer average.


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About the author

Profile photo of Richard Leow

Richard Leow
Research Analyst
Phillip Securities Research Pte Ltd

Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.

He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

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