MIT – DBSV

Portfolio rentals inching up

• 2Q13 results held steady q-o-q
  
• Operational results stable while reversions remained positive at c19-23% y-o-y
  
• Maintain HOLD with revised TP of S$1.43
  

Highlights

2Q13 DPU of 2.29 Scts in line. Mapletree Industrial Trust (MINT) reported gross revenue and net property income of S$68.2m and S$48.4m, higher by 16% and 18% y-o-y respectively. The stronger performance was largely attributed to the contribution from the acquisition portfolio, supported by continued positive rental reversions, high occupancy levels for its various key property segments. As a result, distributable income came in 18% higher at S$37.5m, translating to a DPU of 2.29 Scts, forming c51% of our full year forecasts. On a sequential basis, performance was steady for topline (+2% q-o-q) and net property income (+0.1% q-o-q).

Improved capital structure. MINT issued S$45m worth of MTN notes at a fixed rate of 3.65% with a tenure of 10 years. However, all-in interest costs declined to 2.3% (vs 2.5%) as the REIT replaced its expiring interest rate swaps with cheaper ones.

Resilient portfolio; positive reversions should continue. MINT’s diversified portfolio of industrial properties remained resilient, achieving improved average occupancies 94.9% in 2Q13 and continues to see healthy retention rates of 71.1%. Portfolio average rental inched up higher to S$1.59 psf/mth (vs S$1.56 in 1Q13) with new leases and renewals rising by 19-23% on average. Retention saw a rebound to 85% ( vs 71% in 1Q13) on the back of pro-active preleasing efforts.

Our View

Manager expects operational outlook to remain stable. Looking ahead, with only 9% of topline that is up for renewal over the rest of FY13, earnings should remain fairly resilient. The manager is attempting to improve portfolio WALE (currently at 2.4 years) and income certainty for the REIT through offering tenants longer-term leases with staggered rental escalations, and responses have been positive. Rental reversions are expected to trend down as MINT’s portfolio average passing rent inches up each quarter. Our estimates are nudged up slightly as we account for the positive reversions in its flatted factories / ramp-up factories.

Recommendation

Maintain HOLD, TP raised to S1.43. While FY13-14F yields of 6.5-6.6% are attractive vs peers, we believe the positives regarding its resilient portfolio are reflected in the share price. Our TP is raised as we roll forward our valuations to FY14 but maintain our HOLD call on MINT given limited upside to our target price.