Mapletree Industrial Trust - CIMB Research 2017-01-25: J&J pre-termination priced in

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - J&J pre-termination priced in

9MFY17 DPU of 8.51 Scts (+2% yoy) was in line with expectations, at 75% of our full-year forecast. 3QFY17 DPU of 2.83 Scts (+0.4% yoy) was 25% of our FY3/17F.
Average portfolio occupancy declined to 92.1% in 3QFY17 (2QFY17: 92.5%).Average portfolio passing rent ticked up S$0.01 Sct qoq to S$1.93 psf pm.
J&J will be terminating its lease nine months earlier on 30 Sep 2017, with compensation of S$3.1m, covering around six months of rent.
We maintain Add on MINT, with unchanged DDM-based TP and forecasts.

Potential catalysts are higher contributions from BTS for HP and Kallang Basin 4.

The 0.4% yoy increase in 3QFY17 DPU stemmed from higher rental rates across all property segments and first contribution from BTS for Hewlett-Packard (HP), partly offset by lower portfolio occupancy.
Average portfolio passing rent increased to S$1.93 psf pm in 3QFY17 from S$1.92 psf pm in the preceding quarter.
Average portfolio occupancy declined to 92.1% in 3Q (2QFY17: 92.5%). Contribution from HP commenced on 12 Dec and was minimal.
Johnson & Johnson (J&J) pre-terminated its lease at The Strategy.

Lower occupancies were registered for Hi-Tech (3QFY17: 87.7% vs. 2QFY17: 94.2%) and business park buildings (3QFY17: 87.3% vs. 2QFY17: 87.5%).
The lower occupancy at Hi-Tech was due to the time lag between the date that the BTS for HP was ready and the date it was handed over. A small tenant vacated some space at the business parks.
We also note that there was a qoq downward drift in NPI margin for light industrial buildings due to one-off maintenance expenses.

Renewal leases across all properties registered flattish reversion in 3QFY17. However, new leases signed at flatted factories and business parks were lower than passing rents, as the trust became more aggressive in attracting new tenants. Notably, new leases at business parks (comprised c.4% of business parks’ NLA or c.52k sq ft) were signed at S$2.95 psf pm, at c.24% discount to passing rent of S$3.87. The discount can be largely attributed to a multinational ICT tenant that took up c.45k sq ft at The Signature.

J&J (accounted for 2.2% of GRI and MINT’s fourth-largest tenant) will be terminating its lease nine months earlier on 30 Sep 2017, with compensation of S$3.1m, covering six months of rent.
We expect the S$3.1m to be distributed in FY18F to make up for potential rent shortfall. MINT has nine months of lead time to backfill the space. Also, the trust retained 75.5% of tenants in the quarter (in line with norm).
Looking ahead, about 31% of GRI is up for renewal in FY18F, which is slightly higher than norm.

We continue to like MINT for its “clean” story and growth underpinned by development projects.
Given the higher total return offered by MINT compared to the other REITs under our coverage, we keep our Add recommendation, DDM-based TP (S$1.68) and forecasts.
Potential catalysts are better-than-expected contributions from BTS for HP and Kallang Basin 4 (currently no pre-commitment).

YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-25

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