Mapletree Industrial Trust: Portfolio of stability and diversification April 25, 2018

PSR Recommendation: NEUTRALStatus: MaintainedTarget Price: SGD2.09
  • Gross revenue and DPU in line with our forecast
  • Full quarter contribution from JV of 14 US data centres in 4Q FY17/18
  • Maintain Neutral; lower target price of $2.09 (previously $2.15)

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The Positives

  • Portfolio value remains stable, with slight tightening of capitalisation rates. Tighter capitalisation rates seen for Flatted Factories, Hi-Tech Buildings and Stack-up/Ramp-up Buildings. Capitalisation rate for Business Park Buildings remained unchanged while that of Light Industrial Buildings widened.
  • Gearing remains relatively low at 33.1%. This affords a debt headroom of ~S$340mn by our estimate, potentially growing the AUM by ~8%. Average debt maturity has improved from 3.0 years to 3.3 years. However, interest cost is expected to creep up.
  • Total WALE of 3.8 years, boosted by US portfolio that has a WALE of 6.0 years. There are no leases in the US portfolio that are expiring within the next two years, while 18% of the total portfolio by GRI is due for renewal in FY18/19.
  • 30A Kallang Place achieved 40% committed occupancy. The AEI was recently completed and the property received its TOP in February 2018. New tenants are mainly from the technology sector. The manager expects six to nine months of ramp-up and targets 90% occupancy by the end of 2018.

The Negatives

  • Portfolio weighted average rental reversion of -2.2%. Rental reversions were negative for all segments except Hi-Tech Buildings. Average rent for six new leases at Business Park Buildings was 18% below the average passing rent. A contributor to this was the lower rent that the manager had given at The Strategy for a fairly large tenant (20,000 sq ft), in an effort to back-fill space that was vacated by Johnson & Johnson.
  • Singapore portfolio occupancy is marginally lower QoQ from 90.1% to 89.6%. This was driven by lower occupancy from Hi Tech Buildings, as the recently completed 30A Kallang Place was included in the computation. Occupancy at the US portfolio remains unchanged QoQ (with no leases expiring in the next two years).

Outlook

The outlook is stable. Full year contribution from JV platform of US data centres to adequately offset any softness from the Singapore portfolio in the year ahead. The manager expects softer leasing from Flatted Factories, while Business Park Buildings to remain fairly strong.

Maintain Neutral; lower target price of $2.09 (previously $2.15)

Estimated yield of ~6% should be stable, but current valuation is rich. Forward P/NAV multiple is now about +2 standard deviations above the historical average, and we are cognisant of the risk of it reverting to mean. Our target price represents an implied 1.48 times FY19e P/NAV multiple.

Update to New Data Centre BTS

The manager expects completion to be in July or August this year.

Figure 1: BTS Project – 12 Sunview Drive

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Source: Company FY17/18 Financial Results Presentation, 23 April 2018

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About the author

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Richard Leow
Investment 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 for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

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