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; 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.

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.

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.

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.

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%.

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.

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.

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 | http://research.uobkayhian.com/ 2016-01-27

UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.61 Same 1.61