MI-REIT – Phillip

Latest 2QFY09 results were within expectations without much surprise. MacarthurCook Industrial REIT (MIREIT) reported gross rental revenue of S$12.4m (68.8% YoY, 0% QoQ), distributable income of S$6.9m (44.2% yoY, +5.6% QoQ) and DPU of 2.35 cents (26.3% YoY, 0% QoQ).

Since 1QFY09, MIREIT has paid out approximately 90.16% of the distributable income and had maintained the same quantum of 2.35 cents for both 1QFY09 and 2QFY09. The REIT Manager has indicated that it will pay out all retained amounts for the full year and therefore we do not expect much variant of the DPU amount for the second half of the year.

MIREIT has 91% of its debt due in April 2009. Negotiations are underway and our general view is refinancing will take place with a much higher margin. The remaining of its debt relate to the Japanese debt that is due in Dec 2009. MIREIT will also face significant financing requirement in Dec 2009 for the purchase of the business park development at Plot 4A, IBP.

The property portfolio maintains 100% occupancy and is fairly well diverse across the sub sectors. The biggest tenant contributes 20.3% of rental income and top ten tenants account for 66.6% of total income, contrasting with the 33.6% and 94.2% at the time of IPO. The portfolio registered an S$1.5m accretion in asset value from a property valuation done on 13 of the properties on 6 Nov 2008.

Valuation and recommendation. Our revenue projections remained intact because there is a built-in rental escalation component. We have however increased our borrowing cost assumptions and reduced our DPU projections from FY10F onwards. We adjusted our DCF parameters to factor in higher risk premium and our DCF derived fair value is lowered to S$0.60 from S$1.18 previously. Maintain Buy with a long-term view.