Maybank Kim Eng Research 2015-07-01 Real Estate Sector (Part 4): Industrial REITs - BUY Cache Logistics (TP $1.37), Mapletree Industrial Trust (TP $1.77), SELL Ascendas REIT (TP $2.27)

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Investment theses – Industrial REITs

Ascendas REIT - SELL (TP $2.27) 

• Occupancies at factories and warehouses fell QoQ (high-spec 88.9% to 88.5%, light industrial 93% to 92.5%, warehouses 86.5% to 85.8%), but a ramp-up at Aperia from a low base (54% to 80%) and improved occupancy at business parks (88.7% from 88%) lifted overall occupancies to 87.7% from 86.8%. 
• As factories and warehouses form 60.2% of NPI, we are wary that consensus expectations may not be met, given the challenging oversupply situation there. 
• Rental reversions slowing FY3/13-15: 14.4% / 10% / 8.3% 
• Minimal DPU growth expected: 14.6 cts (FY3/15), 14.8 cts (FY3/16), 15 cts (FY3/17) 
• Consensus is expecting FY3/16 DPU 15.4 cts. 
• Aggregate leverage 33.5% (from 33.6%). All-in borrowing cost 2.7% (from 2.7%). 
• Valuation: DDM, CoE 8.5%, LTG 2%. 
• Risks to TP: better than expected occupancies for factories, warehouses and business parks. 
• Catalyst: acquisitions from sponsor Ascendas. 

Mapletree Industrial Trust - BUY (TP $1.77) 

• Occupancies at factories largely fell QoQ (flatted factories 91.7% to 91.1%, high-spec 81.7% to 80.4%, stack-ups 97.3% to 95.4%, light industrial marginally improved 97.8% to 98.2%). Business parks did well, from 81% to 85.7%. 
• FY3/16 DPU to dip 1% on lower factory occupancies despite its new BTS-Equinix. FY3/17-18 DPU should grow as BTS-Hewlett Packard will be phased in towards late FY3/17. 
• DPU expected: 10.3 cts (FY3/16), 10.8 cts (FY3/17), 12.2 cts (FY3/18). 
• Aggregate leverage 30.6% (from 32.8%). All-in borrowing cost 2.3% (from 2.2%). 
• Valuation: DDM, CoE 8.5%, LTG 2%. 
• Risks to TP: lower-than-expected factory occupancies. 
• Catalyst: debt-funded acquisitions, as MIT still has a low aggregate leverage. 

Cache Logistics - BUY (TP $1.37) 

• 74% of NPI tied to single-tenant master lease. Only 26% tied to multi-tenanted market. Makes earnings defensive in a tough market. 
• Lowest tenant expiry profile: 9%/15%/3%. 
• Australian acquisitions to contribute from 2Q15. 
• BTS-DHL to provide DPU uplift in FY16. 
• Flat FY15 DPU at 8.6 cts, growth in FY16 to 9.3 cts. 
• Aggregate leverage 36.6% (from 31.2%). All-in borrowing cost 2.77% (from 3.3%) 
• Valuation: DDM, CoE 8.5%, LTG 2%. 
• Catalysts: acquisitions from sponsor CWT.

(Derrick Heng, CFA; Joshua Tan)

Source: http://www.maybank-ke.com.sg