Mapletree Industrial Trust - CIMB Research 2016-04-26: 4QFY16 ~ credible performance

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust 4QFY16: credible performance

FY16 DPU of 11.15Scts (+7% yoy) was slightly ahead of our expectation, at 104% of our full-year forecast. 4Q16 DPU of 2.81Scts (+6% yoy) was at 26%.
Improved portfolio performance and progress from development and improvement works led to an increase in portfolio value of S$133.7m.

Portfolio occupancy at 94.6%; portfolio passing rents at S$1.90 psfpm. 21.1% of GRI up for renewal in FY17.
We raise our DDM target price slightly (S$1.67), but maintain Hold after the recent run-up.

We view MINT’s 4Q16 results as credible.
4Q16 distributable income increased 8% yoy to S$50.4m, due mainly to higher occupancies and rental rates achieved across all property segments, as well as contribution from the build-to-suit (BTS) project for Equinix at 26A Auer Rajah Crescent (came online in Mar 15).
There were also cost savings from lower utilities and marketing costs.
For FY16, distributable income hiked up 9% yoy to S$197.8m.

Coupled with improved portfolio performance, a 25 bps compression in cap rates for its business parks (currently 6%), as well as construction progress at the Telok Blangah Cluster and commencement of the AEI at Kallang Basin 4 Cluster, MINT booked a portfolio revaluation gain of S$82m and capitalised cost of S$51.7m from development and improvement works.
Accordingly, NAV/unit increased to S$1.37/unit (FY15: S$1.32)

4Q16 portfolio occupancy slipped 0.1% pts qoq to 94.6% due mainly to lower occupancy at Stack-up/Ramp-up buildings.
Portfolio passing rent rose to S$1.90 psfpm vs. S$1.89 psfpm in 3Q16.
For flatted factories, the +2.8% rental reversion in 4Q was due to leases renewed at more centrally-located areas, while new leases signed were 5.1% lower than passing rents as they were at outlying areas.
For Hi-Tech buildings, the -4.9% rental reversion was due to a top 10 tenant taking up more space within the REIT’s portfolio.

Portfolio WALE by GRI stood at 2.8 years as at end-Mar. MINT has 21.1% of GRI up for renewal in FY17, lower than the historical c.30% as management focused on tenant retention.
We understand that none of MINT’s top 10 tenants have leases up for renewal in FY17. The slight negative is that a tenant at 19 Changi South (light industrial building) scaled down space requirements (from 100% to 24%) towards end-Mar.

We note that all-in funding cost increased to 2.5% (3Q16: 2.4%, 4Q15: 2.3%) due to higher hedged rates over pcp.
In total, S$470m of hedges will expire in FY17. Of this, S$210m has been replaced. Replacements of these expiring interest rate hedges are expected to be costlier. That said, depending on market conditions, the Manager could also lower the % of debt with fixed rates (end-Mar 16: 88% hedged).

Increasing our FY17-18F DPU by 0.6-1.3% (on higher revenue and NPI margin), we roll forward our DDM valuations to FY17, which results in a slightly higher DDM target price.
After the recent run-up, we maintain our Hold rating on the stock.
The stock trades at 1.2x P/BV (historical average) and offers an FY17 yield of 6.7% vs. average of 7.4%.

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-04-26

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.67 Up 1.62