Mapletree Industrial Trust - Phillip Securities 2016-07-08: Cautious on over-paying for yield

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MAPLETREE INDUSTRIAL TRUST ME8U.SI 

Mapletree Industrial Trust - Cautious on over-paying for yield

• Price has appreciated almost 10 percent following the Brexit referendum
• Currently trading at a rich 1.28x forward P/NAV multiple
• Downgrading to "Neutral" rating and retaining existing target price of S$1.72

What's New

• We are downgrading our rating for Mapletree Industrial Trust (MINT) from "Accumulate" to "Neutral", as the price has already exceeded our target price of S$1.72. MINT had gained 9.8 percent between June 24 (closing price post-Brexit referendum results) and the last close price on July 7 – outperforming both the FTSE Straits Times Index (gained 4.6 percent) and FTSE REIT Index (gained 6.8 percent).

How do we view this?

 No direct impact from Brexit; domestic Industrial space landscape remains challenging

• MINT does not have any direct exposure to UK or GBP. 
• MINT's portfolio is a pure-play on Singapore's Industrial space sector, which is tightly controlled by JTC. 
• JTC sector occupancy dipped 50pps to 90.1 percent in 1QCY16. Likewise for MINT's portfolio occupancy, which dipped 50pps as well to 94.2 percent in 1QCY16. 
• Going forward, we expect downward pressure on rent would come from the Flatted Factories and Hi-Tech Buildings segments, where the new leases in 4QFY16 were lower than the passing rents.

 Next leg of organic growth from ongoing BTS and AEI projects

• MINT has two ongoing projects of the Hewlett-Packard build-to-suit (BTS) at Telok Blangah Cluster and the asset enhancement initiative (AEI) at Kallang Basin 4 Cluster. The Hewlett-Packard BTS is expected to be completed in two phases by 2HCY16 and 1HCY17. The AEI is expected to be completed in 1QCY18.

 4.6% of debt maturing in FY2017, 14.9% maturing in FY2018

• MINT will be a near-term beneficiary if a low interest rate environment persists, as it has 4.6% of its debt maturing this current FY2017 and 14.9% in FY2018.

Downgrading to "Neutral" rating with unchanged DDM valuation of S$1.72

• MINT has an estimated forward yield of c.6.0 percent, underpinned by the portfolio's stability and resilience. A prolonged low interest rate environment results in an attractive yield spread, but we are cautious on over-paying a high premium to P/NAV valuation.

Note: MINT will be announcing 1Q FY17 financial results on 26 July after market hours.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-07-08

Phillip Securities SGX Stock Analyst Report NEUTRAL Downgrade ACCUMULATE 1.72 Same 1.72