MIT – DBSV

Sailing along just fine

• 3Q13 results in line with expectations
  
• Positive rental reversions but growth moderating
  
• Maintain HOLD and S$1.43 TP
  

Highlights

3Q13 DPU of 2.29 Scts in line. Mapletree Industrial Trust (“MINT”) reported gross revenue and net property income of S$69.2m and S$49.1m, higher by 6% and 8% y-o-y respectively. The stronger performance was largely organic-led with positive rental reversions portfolio wide, while occupancy levels remained fairly stable at close to 95.2%. As a result, distributable income came in 7% higher at S$37.7m, translating to a DPU of 2.32 Scts. On a sequential basis, 3Q13 was an improvement with moderate rises of 1.5% and 1.4% in topline and net property income, respectively.

Positive reversions seen; strong retention rate. Portfolio retention rate was high at 85%, despite average rental hikes for new leases and renewals of 8%-24%, which implies the stickiness of the tenants in their portfolio. As a result, portfolio average rental inched up higher to S$1.61 psf/mth (vs S$1.59 in 2Q13).

Our View

Cautious outlook and pressure points in 2013. Looking ahead in the next financial year, MINT will be renewing close to 30% of its revenues, of which a majority are from its flatted factory space. Given pressure from new competing supply of new industrial space, coupled with a tougher operating environment for SMEs due to cost hikes on the labour front, we expect reversionary gap to compress in the coming quarters and retention rate to fall. In addition, management is expecting to see net property income margin of 70.9% to be under pressure – owing to expected cost increases from maintenance, utilities and security contracts expected to be renewed in the coming year.

Asset enhancement initiatives and development projects completing end of 2013 to lead growth initiatives. MINT is currently embarking on 3 asset enhancement projects (Woodlands Central, Toa Payoh North 1 and The Signature) and 1 development project (Built-to-suit for Kullicke & Soffa) which are on track for completion by the end of FY13. These properties should contribute positively to the trust performance in the medium term. For this quarter, MINT has instituted a dividend reinvestment scheme (DRP) of which proceeds can be channeled towards capex and maintenance needs.

Recommendation

HOLD Call maintained, TP S1.43. While FY13-14F yields of 6.5%-6.7% are attractive vs peers, we believe positives of its resilient portfolio are priced into the stock. Maintain HOLD and DCF based TP of S$1.43.