Mapletree Industrial Trust - DBS Research 2016-04-26: Steady giant

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Steady giant

We downgrade Mapletree Industrial Trust (MINT) to HOLD (from BUY) largely on valuation grounds as share price has hit new multi-year highs.
While yield of c.6.7% is attractive, we believe that the REIT’s strong stability is priced in.
In fact, we see downside risk to DPUs in the coming two years, on the back of potential downward rental reversions (as portfolio rents are near market levels).

MINT delivered 6.0% y-o-y growth in DPU (-0.4% qo-q) to 2.81 Scts, in line with our expectations.
We however note that performance has dipped slightly q-o-q, which suggests that earnings momentum may have peaked. In this current tough operating climate, we expect the Manager to focus more on maintaining occupancy rates instead of focusing on pushing for higher rents. Therefore, we expect rental reversions to moderate to c.0-3% in the coming years.

MINT will only reap the benefits from the completion of development projects from 2HFY18F onwards (built-to-suit project for Hewett Packard and a new hi-tech building at Kallang Basin 4 cluster).
At a total estimated cost of c.S$250m, we estimate returns of c.8.5% which would result in a rebound in DPU growth in the medium term.
Eventual gearing of 34.6% will still be within management’s comfortable range of 35-40%.

We see MINT’s resilience as a value trait in this market and this has been reflected in its current share price. We thus downgrade the stock to HOLD on revised TP of S$1.64.

Rising interest rates An increase in refinancing rates will negatively impact distributions. However, we note that MINT has minimised these risks through having c.88% of its interest cost hedged into fixed rates.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-26

DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 1.64 Up 1.62