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.

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 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%).

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.

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.

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.

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