Mapletree Industrial Trust - Maybank Kim Eng 2015-09-08: Yield to Expand.


Yield to Expand 

  • Factoring in lower market rent assumptions for factories and business parks on weakening economy. 
  • FY3/16-18 DPUs cut by c.1%. 
  • TP SGD1.43, down from SGD1.77 on switch from DDM to yield target of 7.5%. D/G to HOLD. 

What’s New 

  • 1QFY3/16 results were strong at both the operating and financial level. Revenue, NPI and DPU were 25.6%/25.8%/26.4% of our previous estimates. Occupancy rose to 93.5% (4Q: 90.2%). Rent reversions however continued to trend down to just c.2.9% (FY3/15: 9.6%, FY3/14: 26.4%). 
  • Recent macro data also suggests that economic risks are rising. As such, we have become more pessimistic on the leasing market going forward. 
  • Factoring in new 2015-17 market rent assumptions of -1.4%/-2%/0% for factories, and 0%/0%/3% for business parks, causes us to expect that factory rent reversions will trend toward negative 2-3.4% over FY3/17-18, while for business parks it could soften to c.2.9%. As such, our FY3/16-18 DPUs are adjusted to 10.6/10.7/11.8 cts from 10.3/10.8/12.3 cts. 
  • Growth is still expected with BTS projects Equinix and Hewlett Packard to contribute. 

What’s Our View 

  • We are changing our valuation methodology across all our REITs from DDM to yield targets to better reflect the current de-rating environment. Our target yield for MIT is 7.5% vs 7.25% for Areit and 9% for Cache. 
  • MIT has been the 2nd most resilient SREIT YTD with 8.8% total return.Its yield spread with Areit has also been declining, narrowing sharply to just 14bp, even lower than its 1- mth MA of 54bp. We do not think that it can maintain such a tight spread with Areit given the latter’s larger and more diversified portfolio, and believe a 25bp spread is more sustainable. 
  • Applying our 7.25% target yield to our FY16 DPU lowers our TP to SGD1.43 from SGD1.77. D/G to HOLD.

Joshua Tan | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-08
HOLD Downgrade BUY 1.43 Down 1.77