Mapletree Industrial Trust - CIMB Research 2016-07-26: Run, Forrest, run!

Mapletree Industrial Trust - CIMB Research 2016-07-26: Run, Forrest, run! MAPLETREE INDUSTRIAL TRUST ME8U.SI 

Mapletree Industrial Trust - Run, Forrest, run!

  • 1QFY17 DPU of 2.85 Scts (+4.4%yoy) was in line with our expectations and consensus, forming 26% of our FY3/17 forecast.
  • In spite of headwinds, MINT reported good organic performance, driven by higher rental rates and occupancies.
  • We expect an effective 50%-contribution from the BTS for HP in FY18.
  • We refreshed our model and introduce new FY17-19 forecasts.
  • Backed by a resilient portfolio, strong balance sheet and 3-year DPU CAGR of 5% (one of the highest under our coverage), we upgrade MINT to ADD.

A stellar set of 1QFY17 results

  • Among the REITs that have reported quarterly earnings so far, we consider MINT’s 1QFY17 results to be one of the most stellar. 
  • 1QFY17 DPU growth yoy was driven by higher rental rates achieved across all property segments and higher occupancies at hi- tech buildings and business parks. 
  • In spite of continued rental pressures, MINT achieved higher average portfolio passing rent of S$1.92 per sq ft per month (+1% qoq, +3% yoy). 
  • In addition, NPI margin climbed up to 75.9% (4QFY16: 73.8%, FY16: 73.9%).

Portfolio performance

  • Portfolio occupancy fell to 93% (4QFY16: 93%), as retention rates were lower for all segments except flatted factories. Portfolio retention rate was c.66%. 
  • Nonetheless, the Manager has kept portfolio occupancy above 90% over the past five years. 
  • The positive rental reversion in 1QFY17 was driven by flatted factories, with higher renewed and new leases than preceding levels. We have inputted flattish rental reversion into our model. 
  • Lastly, expiring leases in FY17 were reduced to 14.1% (end-FY16: 21.1%).

Capital management

  • Balance sheet remained robust with gearing at 28.2% at end-1QFY17, one of the lowest in the sector. 
  • Average all-in funding cost was 2.5% and 87.6% of debt has been hedged. Around S$470m of hedges are due to expire in FY17, of which S$200m has been extended/replaced.

BTS facility for Hewett-Packard (HP) on track

  • Construction for the first phase is expected to be completed in 4QCY16 and the second in 2QCY17. 
  • We note that there is a redistribution of 6-month rent-free periods over the first 18 months for Phases 1 and 2, which should bump up accounting revenue. Effectively speaking, we factor in 50% contribution from the facility for FY18F.

We turn constructive on MINT

  • Backed by a resilient portfolio, strong balance sheet and 3-year DPU CAGR of 5% (FY17-19F), one of the highest under our coverage, we turn positive on MINT. 
  • Growth is driven by the HP facility and development of a hi-tech building at the Kallang 4 cluster (contribution in FY19F onwards). 
  • Furthermore, revaluation of the two development projects would boost NAV.

Upgrade to Add with higher DDM-based target price

  • Although MINT trades in excess of one s.d. above historical mean, its growth means that investors would enjoy normalised yields by FY19F. 
  • In the interim, the possible relocation of Johnson & Johnson (MINT’s third-largest tenant, contributing 2% of GRI) is not likely to derail MINT’s visible growth path. The J&J lease expires in 2018. 
  • In this note, we refresh our earnings and upgrade MINT to Add with higher DDM-based TP S$1.90.

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-07-26
CIMB Securities SGX Stock Analyst Report ADD Upgrade HOLD 1.90 Up 1.67