Key take-aways from meeting

• Strong operational performance

• Organic growth robust, further upside from acquisitions, asset enhancement works

• Maintain BUY, DCF-based TP raised to S$1.21

Strong operational performance. Mapletree Industrial Trust’s (“MINT”) strong set of 4Q11 results unveiled encouraging datapoints. Firstly, occupancy increased to 93.2% on the back of high retention rate of 86%, indicating a strong underlying demand for industrial space. Secondly, MINT continues to renew c99.1% of leases at the maximum cap (for the non-business parks space in its portfolio) while new leases secured at market rates are in excess of 20% above expiring rents. These highlight that the average portfolio rental rate of S$1.49 psf/pm is not excessive and there is room for further upside once the rental caps affecting c84% of its NLA fall off in Jun’11.

Organic growth remains robust over FY12-13F. We expect MINT to deliver strong organically-driven DPU CAGR of 9% over FY12-13F. As rental caps expire, the manager will re-price rents nearer to market when leases, amounting to c23%/c26% of revenues are renewed over FY12/13. Further earnings growth is likely to come from a myriad of opportunities – (i) with strong take-up for its first initiative at property development in Redhill – a conversion of flatted factory space into e-business use – the manager is looking for more asset enhancement opportunities within its portfolio. Possibilities include similar conversion of vacant space and redevelopment of un-utilized GFAs in certain properties, (ii) 3rd party acquisitions, which the manager is actively pursuing, including JTC’s trade sale of a portfolio of assets.

BUY call maintained, TP raised to S$1.21. MINT currently trades at implied yield of 6.6%, which means that target acquisitions should be accretive when executed. Prospective FY12-13F yields of 7.2-7.7% are attractive given its mid-large cap status and strong sponsor backing.

Low-risk yields

• Initiate with Outperform and target price of S$1.24. Sponsored by Mapletree Investments, MIT is a REIT that invests in income-producing industrial assets in Singapore. With an 11.2% market share of Singapore’s flatted factory space, MIT’s S$2.1bn portfolio is a good proxy for Singapore’s SME space, we believe. We anticipate a 3-year DPU CAGR of 5.3% for the next two years as existing rental caps on its non-business park space are lifted by June. Using DDM valuation (discount rate 8.4%), we arrive at a target price of S$1.24. Trading at 1.24x P/BV and a 2010 yield of 6.6%, MIT is not cheaper than industrial leader AREIT (1.25x P/BV; 7% yield). However with a under-rented portfolio, pure Singapore exposure, and large tenant base point, rental downside is limited whilst upside is conversely strong. We expect catalysts from announcements of accretive acquisitions or development projects.

• Demand to outpace supply. A healthy Singapore economy and manufacturing growth backed by the global electronics and semiconductor recovery are likely to boost take-up for flatted factories as firms expand to increase demand. Net new demand for flatted factories could surpass net new supply at least till 2013. The resultant rise in occupancy should lend support to rents and capital values.

• JTC’s trade sale could represent acquisition opportunity. JTC’s Phase 2 divestment of assets is likely to be finalised in 1H11. Its 3.5m sf portfolio will have no rental cap imposed, representing good opportunities for upward rental reversions at the onset, in our opinion. This represents a good acquisition opportunity for MIT to acquire a portfolio of similar asset quality and positioning as its existing one.

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.

Mapletree Industrial Trust’s DPU beats forecast

$22.3m distributable income for reporting period 13.6% higher than expected

MAPLETREE Industrial Trust’s first set of financial results since its listing on the Singapore Exchange have surpassed forecasts, its manager said yesterday.

The Singapore real estate investment trust (Reit) achieved a distribution per unit (DPU) of 1.52 cents for the period from Oct 21 (listing date) to Dec 31 last year, 13.4 per cent above the forecast of 1.34 cents disclosed in its initial public offering prospectus.

Distributable income for the period came in at $22.3 million, 13.6 per cent above its forecast, thanks to higher gross revenue and lower property expenses.

After its widely anticipated IPO was 38 times subscribed last year, MIT surged on its first day of trading to close at $1.16, up from its offer price of $0.93. Yesterday, MIT slipped one cent to close at $1.09, before its results were announced.

Higher rentals and a one-off rent collection back-dated to the start of a tenant’s lease lifted gross revenue to $41.5 million, 4.8 per cent above the forecast.

Lower utility costs thanks to energy saving initiatives, lower maintenance expenses and a one-off recovery of bad debts previously written-off, all lowered MIT’s property expenses to $11.9 million, 3.8 per cent below what was initially forecast.

Excluding the one-off effects on revenue and property expenses though, Mapletree Industrial Trust Management (MITM) said yesterday that the DPU would have been 1.46 cents, still 9 per cent above the forecast.

With the manufacturing sector expected to grow in tandem with Singapore’s economy, the manager expects demand for industrial properties to remain stable this year and sustain MIT’s performance.

‘Improving demand for industrial space is reflected in the healthy occupancy rate of 92.3 per cent and average monthly rental rate of $1.45 per square foot per month, for the third quarter,’ said Tham Kuo Wei, CEO of MITM.

MIT retained 81 per cent of leases due for renewal in Q3, (the three months ended Dec 31, 2010), and the rentals were renewed at an average of 21.9 per cent above previous rates. For the rest of its financial year which ends on March 31, only 2.6 per cent of MIT’s portfolio is still due for renewal.

Meanwhile, renovation has begun at its Redhill 2 cluster to convert the 7th floor of a flatted factory into e-business space, which commands higher rentals than conventional flatted factory space. It is expected to meet strong demand from enterprises and start-ups in e-business, and is slated for completion by the end of March.

MIT has committed to distributing 100 per cent of its adjusted taxable income from the listing date till March 31, 2012. Unitholders can expect to receive their first distribution on Feb 28.

COMPLETION OF ACQUISITION OF 44 & 46 CHANGI SOUTH STREET 1, SINGAPORE

Further to its press release dated 2 December 2010 regarding the acquisition of the property at 44 & 46 Changi South Street 1, Singapore for a purchase price of S$16.8 million, Mapletree Logistics Trust Management Ltd., as manager of Mapletree Logistics Trust is pleased to announce that the acquisition was completed today.

The acquisition was fully funded by proceeds raised in the recent equity fund raising exercise announced on 21 September 2010 (“EFR announcement”). This was one of the Potential Acquisitions as identified in the EFR announcement.