Mapletree Industrial Trust - CIMB Research 2016-10-25: 2QFY17 DPU still up despite headwinds

Mapletree Industrial Trust - CIMB Research 2016-10-25: 2QFY17 DPU still up despite headwinds MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - 2QFY17 DPU still up despite headwinds

  • 1HFY17 DPU of 5.68 Scts (+2.9% yoy) was in line with our and consensus expectations, forming 51% of our FY3/17 forecast. 2QFY17 DPU was 25% of FY17f.
  • As flagged earlier, portfolio occupancy was 0.5% pt lower qoq at 92.5% in 2Q. This was due to lower occupancies at Business Parks and Stack-up/Ramp-up Buildings.
  • Portfolio passing rent was stable qoq at S$1.92 per sq ft per month.
  • Phase 1 of BTS for HP has obtained its Temporary Occupation Permit (TOP).
  • Maintain Add with unchanged DDM-based target price.

Resilient 2QFY17: achieved DPU of 2.83 Scts (+1.4% yoy) 

  • For 2QFY17, MINT achieved improvement of 3.4% and 1.4% in distributable income and DPU, respectively. 
  • The improvement sprang from higher rental rates secured across all property segments and higher occupancy achieved at Hi-Tech Buildings. Also, the REIT achieved a higher NPI margin of 75.7% in 1HFY17 versus 73.8% in 1HFY16. 
  • Qoq, NPI margin was 0.3% pt lower due to higher property taxes. 
  • In 1QFY17, there was a retrospective downward revision in annual value by Inland Revenue Authority (IRAS).

Portfolio occupancy came in 0.5% pt lower qoq at 92.5% in 2QFY17 

  • Notably, lower occupancies were registered for Business Parks (from 89.2% in 1QFY17 to 87.5% in 2QFY17) and Stack-up/Ramp-up Buildings (from 93.8% to 92.2%). As flagged earlier, Canon (occupied c.9k sq ft) and BlackBerry (c.17k sq ft) did not renew their leases at The Synergy. The REIT has since backfilled about 34% of the space.
  • Meanwhile, The Signature has achieved committed occupancy of 88.5% at present (vs. occupancy of 75% at end-Sep), with an IT company taking up c.50k sq ft at year-end.

Portfolio passing rent stable qoq at S$1.92 per sq ft per month 

  • Apart from Hi-Tech Buildings, signing rents for renewed and new leases across the segments were generally above or in line with passing rents in 2QFY17. 
  • Flatted Factories recorded +2.7% rental reversion but Stack-up/Ramp-up was -2.3% over preceeding levels in 2QFY17. 
  • Signing rents for new leases at Flatted Factories were down 2.7% versus expiring rents; and down 12.2% over previous levels in 2QFY17 for Stack-up/Ramp-Up.

6.8% of leases by GRI due for renewal in 2HFY17F 

  • Although median rents for multi-user factories and business parks across the island have improved 1.1% qoq and 3.7% qoq in the quarter, the Manager cautioned that the influx of supply is likely to continue to exert pressure on occupancy and rental rates. 
  • At end-2QCY16, 10.6% of total 45.4m sq m industrial space in the country was vacant.

Phase 1 of Build-to-suit (BTS) for Hewlett-Packard (HP) has TOP 

  • We expect MINT to accrue rental revenue for Phase 1 in Jan 17 onwards. 
  • With the redistribution of 6-month rent-free periods over the first 18 months, MINT would earn two months of cash rent and incur one month of free rental per quarter for the first six quarters.

Maintain Add with unchanged DDM-based target price 

  • In spite of industry headwinds, we continue to like MINT for its resilient portfolio, strong balance sheet and visible earnings growth drivers (backed by the BTS for HP in FY18F and Hi-Tech building at Kallang 4 cluster in FY19F). 
  • Maintain Add with unchanged DDM-based target price (S$1.90).

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | 2016-10-25
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.90 Same 1.900