MIT – DBSV

Robust organic growth engine

• DPU of 1.52 Scts above street

• Growth to accelerate in FY12F with expiry of rental caps

• BUY, TP revised to S$1.18 based on DCF, offering total return of 15%

DPU of 1.52 Scts ahead of street estimates. Organic growth in MINT’s first report card was impressive with topline and net property income of S$41.5m and S$29.6m, which were 4.8% and 8.7%, respectively higher than IPO forecasts. Portfolio-wide occupancy levels inched 1.1%ppts higher to 92.3%, while reversions averaged 21.9% above previous levels. As such, average portfolio rent rose 10% to S$1.45/sqft pm. For space with rental caps, tenants continued to renew at the maximum cap levels. DPU of 1.52 Scts (+13.4%) included one-off items and when excluded, would have been 1.46 Scts (+9%).

97% of FY11 income locked in, expiry of rental caps in Jun 2011 will see further income hikes. MINT’s ability to sign new leases at >30% above preceding rentals is a testament of the current under rentedness of the portfolio. The expiry of the rental caps by end Jun 2011 should enable MINT to start marking their renewals closer to market. We tweaked our FY12F-13F upwards in view of more robust rental renewal and occupancy assumptions.

Active effort to drive portfolio yields while acquisitions remain a possibility. Driven by demand from end-users, MINT plans to spend S$2.6m to convert one story at Redhill 2 property into e-business space, targeting IRR of 10%. While impact is small, we are encouraged by management’s efforts to look out for opportunities to drive portfolio yields higher, creating value for unitholders in the process. In terms of acquisitions, management is keen on the upcoming JTC portfolio tender, and we see a strategic fit with its current portfolio.

BUY maintained, DCF based TP raised to S$1.18, offering total return of 15%. MINT offers a prospective FY12-13F yield of 7.0-7.4%, which is 100-140 bps above the S-REIT sector. Trading at implied yields of 6.4% means that target acquisitions should be accretive when executed, which are currently not factored in our forecasts.