Mapletree Industrial Trust - Maybank Kim Eng 2016-07-27: High-Spec outperforms

Mapletree Industrial Trust - Maybank Kim Eng 2016-07-27: High-Spec outperforms MAPLETREE INDUSTRIAL TRUST ME8U.SI 

Mapletree Industrial Trust (MINT SP) - High-Spec outperforms

1Q results in line. Maintain BUY

  • NPI and DPU formed 25.5% of our full-year estimates. 
  • Occupancy and efficiency gains YoY at High-Spec and Business Parks offset Factory weakness. 
  • We tweak FY17-19 DPU forecasts marginally +1.6%/-0.5%/- 0.8%, but re-peg our yield target to 6.5% from 7% on low interest rates, growth from high-spec developments phasing in, and ample debt capacity for acquisition/redevelopment growth. 
  • BUY, with TP revised 7% higher to SGD1.90.

Growth due to High-Spec and Business Parks

  • Rev/NPI/DPU grew 3%/6%/4.4% YoY. 
  • Interestingly, gains were made despite overall occupancy falling 0.5ppts YoY to 93%. This was due to High-Spec and Business Park occupancy advancing 4.9ppts and 3ppts YoY to 94.1% and 89.2%, despite Factory (flatted, stack-up, light ind.) occupancy dropping 2.1ppts YoY to 93.1%. Rents at the former two are typically 1.6x and 3x more than at Factories. 
  • NPI margin for High-Spec also increased to 75% (FY16: c.69%) as efficiency gains kick in from increased occupancy. Portfolio rent reversions averaged c.3% (FY16: c.1.3%), healthy considering the current oversupply.

Sequential weakness at Factories a worry

  • Sequentially, portfolio occupancy did slip 1.6ppts QoQ, led by Factories and Business Parks, which dropped 2.2ppts and 0.9ppts QoQ. High-Spec on the other hand gained 0.9ppts QoQ. 
  • While we’re confident that government incentives (The Singapore Fix, 29/6/16) are in place for businesses that need business park and high-spec space, we are more worried about the Factory portfolio, and cut occupancy assumptions there by 1.2ppts. 
  • Overall, we adjust FY17-19 DPU +1.6%/-0.5%/-0.8%.

Yield Compression

  • MINT’s yield has compressed tremendously, by 11% or c.80bps YTD, to 6.5%, 70bps below a standard deviation below the mean. We expect this to be sustainable in a low interest rate, flight-to-safety environment. This is especially as the REIT is poised for DPU growth and revaluation gains from two High-Spec development projects, as well as implied acquisition/redevelopment potential from SGD400m of debt capacity.

Joshua Tan Maybank Kim Eng | Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-27
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.90 Up 1.78