MIT – CIMB

Robust 2Q

2Q12 marked the first quarter since the expiry of rental caps on MINT’s flatted factories. Positives were sustained occupancy and stronger rental reversions. Leasing and organic-growth potential

remains strong given an under-rented portfolio.

2Q12/1H12 DPU is in line with consensus and our estimates, at 26%/ 51% of FY11. We trim interest costs but keep our DDM-based target price (discount rate: 8.6%). Maintain Outperform.

Stronger rental reversions

We continue to see strong organic growth potential from an under-rented portfolio. Positives were stronger rental reversions in 2Q from the expiry of rental caps at end-Jun. While portfolio retention fell to 79% from 89% in 1Q, this was largely in keeping with management’s expectation, given its push on rents after the expiry of rental caps. Portfolio occupancy also crept up to 94.5% from 94.3%.

Continued resilience expected

Leasing enquiries remain strong while arrears (deemed typically a sign of distress among tenants) are still healthy. While there has been a slowdown in enquiries from the electronics sector given weakness in the sector, this slowdown is not new. Stronger demand from biomed and precision engineering etc. also compensates. To enhance its portfolio resilience and visibility, management is looking at introducing packages with longer lease tenures and rental step-ups.

Asset leverage within comfort zone

DPU should continue to benefit from low all-in funding costs of 2.2%. While asset leverage is fairly high at 39%, this is within management’s comfort level of 45% (given stability of its portfolio) with FY12 maturing debt well-supported by existing lines of credit.