MIT to develop $50m BTS facility

Mapletree Industrial Trust (MIT) will develop a build-to-suit facility for Kulicke & Soffa (K&S), its manager said on Thursday.

The BTS facility will be a five-storey high specification light industrial building with a gross floor area of about 30,800 square metres. Total development cost is estimated to be S$50 million.

MIT said it has sufficient financial flexibility and capacity to fund the development of this BTS facility. Assuming that the development is fully funded by debt, the aggregate leverage ratio is expected to increase marginally from 37.8 per cent to 38.8 per cent.

The facility is expected to be completed in the second half of 2013. K&S will occupy 69 per cent of the net lettable area for a 10-year lease term with the option to renew for two additional 10-year terms.

Diversification is key

• 4Q12 DPU of 2.22 Scts slightly ahead, full year DPU of 8.4 Scts is 6% above our forecasts

• Rental growth profile expected to moderate

• Maintain BUY; TP raised to S$1.30

Highlights

4Q12 DPU of 2.22 Scts slightly ahead of estimates. Mapletree Industrial Trust (MINT) reported gross revenue and net property income of S$66.3m and S$46m respectively, representing 20.8% and 23.4% growth above forecasts. The stronger performance was largely attributed to the contribution from its newly acquired JTC portfolio of eight flatted-factories and three Amenity Centers, supported by portfolio wide positive rental reversions. The new portfolio contributed c.63% of topline growth this quarter. As a result, distributable income of S$35.8m was 28% above forecasts, translating to a DPU of 2.22 Scts.

Positive revaluations of S$94m. NAV was lifted to S$1.03 (from S$0.95), due to stronger occupancies and rental income achieved. Gearing headed slightly lower to 37.8%.

Resilient portfolio, healthy reversions. MINT’s diversified portfolio of industrial properties continued to exhibit resilience, achieving reversions of between 15% and 29%. Occupancies were stable at 94.9% in 4Q12 (vs 95.1% in 3Q12) and the average portfolio rental at S$1.55 psf/mth was slightly higher. Retention rates remained healthy at 76.1%.

Our View

Stable performance expected; renewal gap should narrow in our view. Looking ahead, we believe performance will remain relatively stable with portfolio near full occupancy. The manager’s strategy to lengthen its WALE has met with good response, with tenants offered leases with longer tenures. While there will be organic growth from expiring rents in view of the positive spread between passing and market rents, we expect the pace of growth to moderate given the uncertain operating environment with end tenants facing cost pressures on all front.

Recommendation

Maintain BUY, TP S$1.30. Our numbers are adjusted slightly higher to account for higher occupancy and lower than expected interest costs. Our TP of is raised to S$1.30 as we roll forward our valuations to FY13. Maintain BUY.

Decent quarter

4Q12 results were decent in terms of DPU growth and rental reversions. While there was a qoq dip in portfolio occupancy, DPUs should remain stable, underpinned by occupancy and positive rental reversions.

4Q12/FY12 DPU slightly beat our estimates from higher-than-expected rental and margins (28%/106% of FY12) but met consensus expectations. We fine-tune our DPU estimates but keep our DDM target price (discount rate: 8.6%) and Outperform rating pending an analysts’ briefing.

Positive rental reversions

4Q12 NPI was up 23% yoy on increased contributions from acquisitions, higher occupancy and positive rental reversions. DPU was up a lower 14% yoy due to an enlarged equity base following an equity issuance to part-fund its previous acquisition from JTC. Qoq, DPU was up 3%, thanks to positive rental reversions. Rental reversions remained strong: Flatted Factories (+27%), Stack-Up/ Ramp-Up Buildings (+29%) and Warehouses (+15%) over preceding leases. We are slightly concerned about a 9% qoq dip in rentals for new flatted factory leases to S$1.75psf, which could suggest pressures in pushing rents and we would be seeking more clarification from management. Overall occupancy was flat at 94.9%, albeit with some dips from business parks and warehouses.

Strengthened balance sheet

Asset leverage inched down to 38% from 3Q12′s 39% on revaluation gains. During the quarter, management refinanced part of its 2012 loans by issuing a S$125m 7-year 3.75% fixed-rate MTN. Following this, average term to debt maturity has lengthened to three years from 2.5. Weighted average all-in funding costs were up only marginally to 2.3% from 2.2%.

Revaluation gains

A revaluation gain of S$94.1m was recognised from investment properties from higher rental revenue and occupancy, leading to NAV/unit growth of 6.3% qoq.

MIT Q4 DPU up 15%; revenue jumps 24.3%

Reit manager expects MIT to continue doing well in the financial year ahead

MAPLETREE Industrial Trust (MIT) closes its financial year on a sweet note following a 26.4 per cent year-on-year jump in distributable income to $35.8 million during the fourth quarter ended March 31, 2012.

This led to the industrial real estate investment trust (Reit) offering a distribution per unit (DPU) of 2.22 cents for the period – 16.2 per cent higher than the forecast of 1.91 cents and 15 per cent more than the year before.

Gross revenue for the quarter was up 24.3 per cent at $66.3 million from $53.4 million the year before, driven by higher rental rates, stronger occupancy take-up and new contributions. Notably average passing rents rose to $1.55 per square foot (psf) per month from $1.53 psf per month in the quarter before. In addition, positive rental revisions were also achieved for properties such as flatted factories, stack-up/ramp-up buildings and warehouses.

Consequently, net property income was lifted by 23.4 per cent to $46 million over the same period.

Expecting firm performance

• Poised for firm results

• Positive asset revaluation likely

• DPU yields remain attractive

Likely to witness healthy quarterly results

Industrial REITs are expected to kick off the reporting season for the financial quarter ending 31 Mar in mid-April. We believe the REITs will continue to post healthy YoY growth in distributable incomes and DPUs, driven by completion of acquisitions, sound occupancy rates and possibly positive rental reversions. On a sequential basis, the financial performances are expected to stay firm, as contributions from new acquisitions are anticipated to be partially offset by higher operating and financing expenses.

Asset revaluation to provide relief on gearing?

Four industrial REITs, namely AIMS AMP Capital Industrial REIT (AAREIT), Ascendas REIT, Mapletree Industrial Trust and Mapletree Logistics Trust (MLT), will also be concluding their financial years. This will likely be accompanied by a revaluation of their investment properties. Looking at the trend of URA rental and price indexes over the past year, we believe the REITs may likely experience revaluation gains in their portfolios. This may in turn provide some relief on their aggregate leverages, which have mostly been rising amid a spate of acquisitions. In fact, we note that MLT had already announced the completion of the valuations of its 98 properties late this week. The aggregate portfolio amount of S$3.9b, which will be reflected in its upcoming results, was 3.1% and 8.4% respectively to the book values of its investment properties QoQ and YoY.

Subsector yield the highest in S-REIT sector; Cache Logistics is our pick We also revisit the valuations and yields of SREITs, following the recent run-up in the general market. Based on Bloomberg consensus estimates and prices as at 19 Mar 2012, we note that the industrial subsector offers the highest current yield (8.1%), compared to 6.1-7.1% for other subsectors and 6.9% for the overall sector average. We are maintaining OVERWEIGHT on the industrial REIT subsector. Cache Logistics remains our preferred pick, given its attractive FY12F DPU yield of 8.5% and robust portfolio.