Mapletree Industrial Trust - OCBC Research 2016-01-28: A resilient quarter

Mapletree Industrial Trust - OCBC Research 2016-01-28: A resilient quarter MAPLETREE INDUSTRIAL TRUST ME8U.SI 

Mapletree Industrial Trust: A resilient quarter 

 3QFY16 DPU grew 5.6% YoY 
 Focus on maintaining occupancy 
 DRP suspension a positive 

3QFY16 results ahead of our expectations 

  • Mapletree Industrial Trust (MIT) reported 3QFY16 revenue of S$83.3m, representing an increase of 6.6% YoY. This was underpinned by contribution from its build-to-suit project for Equinix Singapore, higher occupancy rates across all segments and an uptick in its blended portfolio passing rents (S$1.83 psf/month in 3QFY15 to S$1.89 psf/month). 
  • DPU rose 5.6% to 2.82 S cents, and was in-line with our expectations. 
  • For 9MFY16, MIT’s gross revenue grew 5.6% to S$247.6m, constituting 74.9% of our FY16 forecasts; DPU rose 7.2% to 8.34 S cents and formed 77.0% of our full-year estimate. 

Continues to showcase resiliency 

  • During the quarter, MIT’s overall portfolio occupancy improved from 93.8% in 2QFY16 to 94.7%. 
  • Positive rental reversions ranging from 1.3% (Hi-Tech Buildings) to 6.5% (StackUp/Ramp-Up Buildings) were recorded across all its sub-segments for its renewal leases. The latter was aided by a lease renewal for a ground floor unit, which typically commands higher rentals. 
  • MIT also saw a healthy tenant retention rate of 84.2% in 3QFY16. 
  • Looking ahead, management intends to focus on maintaining its occupancy, and we believe it would be more flexible in its rental negotiations in light of the tough leasing environment. 

Suspension of distribution reinvestment plan 

  • MIT also announced that it will be suspending its distribution reinvestment plan (DRP) after its 3QFY16 distribution. 
  • We are positive on this move, as the high take-up rate by unitholders has increased its unit base and creates a dilutive impact. 
  • Although MIT would likely have to take on more debt to finance its future capex requirements and distributions, we believe its low aggregate leverage ratio of 29.3% (as at 31 Dec 2015) would provide it with sufficient debt headroom to do so. 
  • Taking this development into account, we raise our FY16 and FY17 DPU forecasts by 1.5% and 2.9%, respectively, and also lift our DDM-derived fair value estimate from S$1.36 to S$1.48. 
  • While we like MIT for its resilient portfolio and strong management team, we maintain our HOLD rating, as we believe valuations are fair. 

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-01-28
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.48 Up 1.36