Mapletree Industrial Trust - DBS Research 2017-01-25: Inorganic growth to drive share price higher

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Inorganic growth to drive share price higher

Steady returns with better times ahead as HP building will lift earnings in the medium term.
Portfolio metrics stable with high retention rates while rental reversions remain stable.
Low gearing of 29% presents growth opportunities.

We maintain our BUY call and TP of S$1.90 on Mapletree Industrial Trust (MINT) on the back of a steady DPU growth profile of 2.3% over FY17-19F (vs 1.2% industrial REIT average).
The REIT offers high earnings visibility and we have confidence that the Manager has the flexibility to execute on more developments to exploit its conservative balance sheet. This implies potential upside to earnings.

Revenues and net property income (NPI) grew by 1.4% and 2.5% y-o-y to S$84.5m and S$63.4m respectively, mainly driven by higher rental rates achieved across all property segments as well as revenue contribution from Phase One of the built-to-suit (BTS) for Hewlett-Packard (HP) which more than offset lower overall portfolio occupancy (92.1% vs 92.5% a quarter ago). As a result, distributable income was 1.6% higher at S$51.1m, but DPU rose a slower 0.4% mainly due to higher units in issue.

MINT’s balance sheet is lowly geared at c.30%, which is one of the lowest in the industrial REIT sector, and gives the Manager significant debt-funded capacity for acquisitions or to undertake developments by taking part in built-to-suit projects (BTS) or asset enhancement initiatives, which we have not assumed.

MINT’s resilience is a value trait in this market and has yet to be reflected in its current share price.
We maintain our BUY call and TP S$1.90.

Rising interest rates An increase in refinancing rates will negatively impact distributions. However, we note that MINT has minimised these risks by having c.68% of its interest cost hedged into fixed rates.

Derek TAN DBS Vickers | Singapore Research Team DBS Vickers | Melvin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-01-25

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.900 Same 1.900