MIT – DBSV

Completion of Equinix to drive growth

• DPU of 2.65 Scts in line
  
• Development projects completing in 2015
  
• Maintain BUY, TP S$1.66
  

Highlights

DPU of 2.65 Scts in line

• Gross revenues and net property income grew steadily at 3.3% and 5.4% higher y-o-y to S$78.1m and S$58.0m respectively and was mainly due to (i) higher portfolio rent achieved (S$1.83psf) while occupancy rates remained stable at 90.8%, and (ii) contribution from completed development projects. NPI margins improved to 74.2% due to utility savings from lower tariffs and is expected to continue. MINT also increased its hedge ratio to 86% during the quarter.
  

Outlook

Development projects to drive earnings growth; back-filling of Signature space a positive

• Occupancy rates at properties post-asset enhancements at Toa Payoh (98% occupied) and Woodlands (80% occupied) continue to improve. We note that Signature has also backfilled a substantial part of its vacant space (occupancy 63% vs 43% in 2Q15) and will contribute to earnings in the subsequent quarter. Looking ahead, the development project for Equinix is on track to complete by Mar’15 and will contribute fully in FY16.
  

Conservative gearing as MINT undertakes its most extensive development project for HP (TOP in 2017)

• Current gearing is conservative at c.32%; implying that the manager has the capability to take on debt-funded acquisitions when the opportunity arises. Gearing is estimated to inch up slowly to c.38% as the Trust starts on the redevelopment of Telok Blangah project for HP in 1Q15.
  

Rental reversions to moderate but still positive

• We note that average passing rates are near market rental reversion levels and are expected to moderate further to <10%. That said, earnings should remain stable.
  

Valuation

We maintain our BUY call and raise our DCF-based TP to S$1.66. At its current price, MINT offers investors a dividend yield of c6.5-6.7%, an attractive level given its strong credit backing and quality name.

Risks

Rising interest rates

• An increase in refinancing rates will negatively impact distributions. However, MINT looks to minimise the impact by having c.77% of its interest costs fixed with a duration of > c.2 years.
  

Economic risk

• A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back on production and require less space. Industrial rents have a strong historical correlation with GDP growth.