Mapletree Industrial Trust - UOB Kay Hian 2016-01-27: 3QFY16 In Line With Expectations

Mapletree Industrial Trust - UOB Kay Hian 2016-01-27: 3QFY16 In Line With Expectations SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Mapletree Industrial Trust -  3QFY16: In Line With Expectations 

• Results in line with expectations. 

  • Results in line with expectations; maintain HOLD with an unchanged target price of S$1.61.
  • Mapletree Industrial Trust (MIT) reported a 3QFY16 DPU of 2.82 S cents (+5.6% yoy). 
  • Excluding exceptionals, the quarter’s core DPU was 2.79 S cents. 3QFY16 gross revenue expanded 6.6% yoy, mainly attributable to contributions from the Equinix BTS project, higher occupancy portfolio-wide, and positive rental reversions. 
  • Despite higher property opex from higher maintenance expenses and property taxes, NPI grew 6.7% yoy. 
  • The results are in line with our expectations, representing 102.5% of full-year estimates. 

• Operational highlights. 

  • Portfolio occupancy saw an uptick of 0.9 ppt qoq to reach 94.7% in the quarter. Gearing retreated 0.4ppt qoq to hit 29.3%, while 85.6% of borrowings have been hedged against interest rate risk (2QFY16: 80%). 
  • No refinancing is required in the next quarter, while 12.0% of borrowings are due in FY17 (12.8% seen in previous quarter). 
  • Borrowing costs crept up 0.1 ppt to reach 2.4% (2QFY16: 2.3%). S$420m in fixed interest hedges due to expire in FY17, which may increase replacement costs. 
  • Tenant retention rate improved markedly by 13.9ppt to 84.2% (2QFY16: 70.3%). 
  • The dividend redistribution plan (DRP) will be suspended after the 3QFY16 distribution. 

• Suspension of DRP. 

  • The REIT manager will suspend the dividend redistribution plan (DRP) after the 3QFY16 distribution. The S$21.5m proceeds from the previous quarter’s DRP were primarily used for project requirements’ loan repayment. Our estimated debt headroom of S$622m implies management will likely tap on debt to fuel inorganic growth in the near term, instead of relying on dilutive fund-raising. 

• Positive rentals and occupancies. 

  • 3QFY16 saw passing rents rise 0.6% qoq to S$1.89psf pm in tandem with increased average portfolio occupancy. 
  • Higher occupancies were registered portfolio-wide except the Light Industrial buildings which are fully occupied. 
  • Positive rental reversions were also recorded throughout all segments. 

• Surge in tenant retention underpinned by increased loyalty in the stack-up/ramp-up segment (97.7% retention vs 55.5% in 2QFY16). 

  • We note that this segment represented 56.5% of expiring leases in the quarter. 
  • Rentals were renewed at 6.5% above the preceding rents. Renewals in the Hi-Tech space also similarly increased, with 69% opting to renew their leases (2QFY16: 45.1%). These led to an overall tenant retention of 84.2%. 

• Potential upside from future leasing activities. 

  • 23.2% of leases by gross rental income are due for renewal in FY17 (only 2.1% left in the remaining quarter of FY16). 
  • Within the flatted factory space, the largest source of expiries in FY17, new and renewal rents are 5.7-10.8% above passing rents (2QFY16: 0.5-3%). However, new leases for the stackup/ramp-up factory space (second-largest expiries by rental) were signed at rates 2.4% below passing rents. 

• AEI/development update. 

  • The AEI at Kallang Basin, originally a 11-storey project, will now have 13 levels, with the completion date pushed back to 1Q18 (originally 4Q17). 
  • The planned additional GFA created still remains at 317,000 sf. MINT’s BTS development for Hewlett Packard (824,500sf by GFA) should see fruition in Phases 1 and 2 come 2H16 and 1H17 respectively. HP has undertaken to fully occupy the facility for 10.5+5+5 years. The 10-year lease takes into account a rent-free period of six months. 

• Challenging outlook in Singapore. 

  • Management continues to expect a challenging business environment due to supply-side pressure and rising interest rates. 
  • According to data from URA REALIS, median rents in the multiple-user space stood at S$1.90psf pm in 4Q15 (-% yoy, +1.1% qoq, while median business park rentals reached S$4.29psf pm (+6.8%yoy, +4.4% qoq). 
  • Management expects a softening in the flatted factory space with muted rental growth due to the increased supply.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | 2016-01-27
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.61 Same 1.61