SINGAPORE (July 26): Phillip Capital is maintaining Mapletree Industrial Trust (MIT) at “neutral” with a target of $2.09 given headwinds from vacancies and negative reversions in the industrial sector.
However, contribution from inorganic sources such as the US data centres JV and and Mapletree Sunview 1 were enough to offset organic weakness.
On Tuesday, MIT's manager reported 1Q19 DPU increased by 2.7% to 3.0 cents from 2.92 cents in 1Q18.
Gross revenue was 3% higher at $91.5 million from $88.8 million, due to revenue contribution from Phase Two of the build-to-suit (BTS) project for HP Singapore and pre-termination compensation received from HGST Singapore.
See: Mapletree Industrial Trust posts 2.7% rise in 1Q DPU to 3 cents
The trust’s gross revenue and DPU came in within the research house’s expectations, meeting 25.6% and 24.8% respectively of its FY19 full year estimate.
MIT’s gearing has remained relatively low at 35.0%, compared to the industrial REITs sub-sector average of 37.4% as at Mar 31.
“We estimate a debt headroom of about $410 million, potentially growing the AUM by about 10%," says analyst Richard Leow in a Wednesday report.
In addition, 30A Kallang Place saw its asset enhancement initiative (AEI) recently completed and obtained its Temporary Occupation Permit (TOP) in February this year. So far, the property has achieved 43.8% committed occupancy, 40% higher than the previous quarter.
Currently, the trust’s manager is in close discussion with potential tenants to secure another 20% commitment.
Full quarter effect from 30A Kallang Place was being included into the portfolio after obtaining its TOP, which contributed to lower occupancy for Hi-Tech Buildings.
On June 27, the trust also acquired 7 Tai Seng Drive from Mapletree Logistics Trust (MLT), which will be upgraded into a Hi-Tech Building as the area has become unsuitable for warehousing. The manager expects this to yield up to 7% after conversion.
However, lower occupancy was seen across all segments except the Business Park Buildings, which resulted in lower q-o-q portfolio occupancy of 88.3% from 90.0%.
Business Park Buildings’ occupancy increased to 79.1% compared to 79.0% in the previous quarter, due to one new lease signed.
MIT recorded portfolio weighted average negative rental reversion of -3.7%, led by Flatted Factories (-5.2%) and Business Park Buildings (-3.0%) as the manager lowered rates to maintain competitiveness.
Meanwhile, back-filling of space at The Strategy at International Business Park that was pre-terminated by Johnson & Johnson remains unchanged from two quarters ago at 23%.
Overall, Leow says that the trust’s outlook is stable.
As at 4.20pm, units in MIT are trading at $2.02 or 18.5 times FY19 earnings with a distribution yield of 6.0%.
