MIT – CIMB

Good but not great

Positive rental reversion and asset enhancements have mitigated the drop in occupancy at The Signature. Although headline yields continue to be attractive, we maintain our Neutral stance, pending future backfilling at the Signature and meaningful growth catalysts.

2QFY14 results were largely in line with consensus and our estimates. DPU for the quarter accounted for 27% of our FY14 forecast, with 1H14 DPU meeting 54%. We bump up FY14-16 DPUs in anticipation of better rental reversion, but maintain our Neutral rating with a higher DDM-based (discount rate: 8.1%) target price of S$1.48.

Positive rental reversion continues

2QFY14 DPU was up 9.7% yoy, mainly attributed to higher rental rates secured across all property segments and higher occupancies in flatted factories and stack-up/ ramp-up buildings. Compared to a quarter ago, revenue dipped by 2.3%, mainly due to the exit of Credit Suisse from The Signature. However, this was mitigated by better margins, which in turn led to DPU being higher by 1.6%. Rental reversions remained fairly strong – flatted factories at +27%, business parks at +12%, stack-up/ramp-up at +27% and high-tech buildings at +25%, but portfolio occupancy dipped slightly to 93.9% (1QFY14: 95.5%).

Factors limiting foreign acquisitions

With its pure-local mandate expiring this month, MINT can look at expanding overseas. Among the various markets, Iskandar is a natural choice for the REIT. However, various factors such as the lack of skilled labour, relatively low yields and the absence of an established local rental market may lead to difficulties in acquiring yield-accretive projects in the near term.

Maintain Neutral

Additional contribution from the recently completed BTS development for Kulicke & Soffa, and AEI projects will mitigate the temporary dip at The Signature. We keep our Neutral rating on MINT (currently trading at 1.2x P/BV), pending clarity on backfilling at The Signature and meaningful new growth catalysts.