Category: MIT
Industrial REITs – OCBC
2Q12 RESULTS ROUNDUP
•Interim results matched projections
•Positive performance to carry on
•Good capital and lease management
Consistent set of results
Industrial landlords continued to deliver, meeting expectations for 2Q12. YoY growth in NPI ranging from 3.9-26.4% was seen among the REITs, bolstered by contribution from completed developments/ acquisitions, positive rental reversions and improved operational performances. Mapletree Industrial Trust was the top performer for the quarter, raking up 14.1% YoY increase in DPU. This was followed closely by Cambridge Industrial Trust and Ascendas REIT, with 13.9% and 10.3% growth respectively. Only AIMS AMP Capital Industrial REIT (AAREIT) and Cache Logistics Trust (CACHE) saw a sequential decline in DPU. However, this was due to the absence of distribution in retained income seen in 1Q by AAREIT. For CACHE, we note that it was attributable to an enlarged unit base arising from private placement to fund the acquisition of Pandan Logistics Hub, even though the property has yet to contribute to its income.
Positive outlook remains
Going forward, we believe that industrial REITs will likely maintain their financial performances. While most of the landlords acknowledge that the macroeconomic landscape has remained uncertain and volatile, they expect stable results from their portfolios, driven by contribution from recent investments and healthy leasing activities in the industrial space. A few industrial REITs also cited the possibility of further positive rental reversions, as current market rents are still above the passing rents at some of their assets.
Occupancy rate and gearing remained at healthy levels
Industrial REITs, we note, have also done well on their lease and capital management. The subsector average occupancy rate as at 30 Jun stood at 98.4%, representing a 60-bp improvement QoQ, while the weighted average lease to expiry held steady at 3.6 years. This reflects active portfolio management and continued strong demand for industrial property. In addition, the subsector aggregate leverage average was still comfortable at 33.5% (vs. 33.9% in 1Q). As such, we maintain our OVERWEIGHT rating on the industrial REIT subsector. Cache Logistics Trust remains our preferred pick, given its attractive FY12F DPU yield of 7.6% and robust portfolio.
MIT – DBSV
Pushing ahead
• 1Q13 results stellar at 2.26 Scts
• Resilient portfolio; reversions and retention rates remain at healthy levels
• Forward yields of 7.1-7.4% attractive; BUY with higher TP of S$1.35
Highlights
1Q13 DPU of 2.26Scts in line. Mapletree Industrial Trust (“MINT”) reported gross revenue and net property income of S$66.9m and S$48.3m, which were higher by 22% and 26% y-o-y respectively. The stronger performance was largely attributed to contribution from its newly acquired JTC portfolio of 8 flatted-factories and 3 Amenity Centers (accounting for 60% of the S$11.9m y-o-y topline growth). Excluding new acquisitions, MINT posted strong organic performance, with its portfolio achieving higher rental and occupancy rates. As a result, distributable income came in 25% higher at S$36.9m, translating to a DPU of 2.26 Scts, forming c.27% of our full year forecasts. On a sequential basis, performance was relatively stable, with a slight improvement in new property income margins due to lower maintenance expenses in 1Q12; we estimate margins to normalise back to c.70% level in the coming quarters.
Our View
Resilient portfolio, healthy reversions. The performance of MINT’s diversified portfolio of industrial properties was resilient, achieving higher average occupancies q-o-q of 94.9% in 1Q13, stable qoq, with portfolio seeing healthy retention rates of 71.1%. Portfolio average rentals inched up higher to S$1.56 psf/mth with new leases and renewals averaging hikes of c9.3-31.7%. Amongst the subsectors, the flatted factories space is the most stable – with new leases/renewals ranging between 5-21% above passing levels, ahead of our forecasts. As such, we tweak our earnings estimates slightly to account for higher reversions in FY13/14.
Manager expects stable operations. Looking ahead, MINT’s operational performance should be relatively stable, given a portfolio where occupancies are almost full while having only 13% of topline that is up for renewal over the rest of FY13. This limits downside risks in our view. The manager continues to improve portfolio WALE (currently at 2.6 years) and income certainty for the REIT through offering tenants longer-term leases with staggered rental escalations which we understand have seen good take-ups.
Recommendation
BUY call maintained, TP raised to S$1.35. MINT continues to offer attractive forward yields of 7.1-7.4%, supported by a diversified portfolio and strong sponsor backing. TP of S$1.35 offers total return of 16%.
MIT – CIMB
Just ambling along
While we like MINT for its stable portfolio, we think organic growth could moderate as passing rents for its previously under-rented flatted factories catches up with renewal rents and the market. Higher asset leverage could also limit inorganic growth through debt-funding.
1QFY13 DPU at 26% of our FY13 number was in line with both our and street estimates. We lower DPUs on rental and interest cost adjustments, but raise our DDM target price with a lower discount rate of 8.1% (prev. 8.6%). We downgrade MINT to Neutral from Outperform on limited upside.
NPI margin boost
1QFY13 NPI was up 26% yoy, thanks to contributions from acquisitions, positive rental reversions and margin improvements. Qoq, NPI was up by 5% mainly due to higher NPI margin of 72.3% (vs. 4QFY12’s 69.4% and FY12’s 69.5%) on lower operating capital expenses offset by higher utilities and marketing expenses. We expect margins to moderate in coming quarters.
Moderation in reversions
Rental reversions remained strong: Flatted factories at +22%, Business parks at +9%, Stack-up/Ramp-up buildings at +32% and Warehouses at +15% over preceding leases. But there was some moderation in rental reversions vs. 4Q12’s +27% for flatted factories on attempts to lengthen lease tenures for targeted tenants, and tapering off in growth. Occupancy was flat at 94.9% as lower warehouse occupancy (with the departure of a major tenant, 20-30% back-filled) was offset by higher flatted factories’ occupancy. Business parks occupancy was flat at 91%.
Growth priced in
MINT’s performance should remain stable. However, we believe that the current valuation at 1.2x P/BV has priced in growth potential, particularly with organic growth expected to moderate as passing rents of its under-rented portfolio catches up with the market, and with likely increased resistance to rental increases in the current climate. Asset leverage of 38% or 39%, factoring in recent built-to-suit development, could also limit inorganic growth through debt funding, in our view.
MIT – BT
MIT to develop $50m BTS facility
Mapletree Industrial Trust (MIT) will develop a build-to-suit facility for Kulicke & Soffa (K&S), its manager said on Thursday.
The BTS facility will be a five-storey high specification light industrial building with a gross floor area of about 30,800 square metres. Total development cost is estimated to be S$50 million.
MIT said it has sufficient financial flexibility and capacity to fund the development of this BTS facility. Assuming that the development is fully funded by debt, the aggregate leverage ratio is expected to increase marginally from 37.8 per cent to 38.8 per cent.
The facility is expected to be completed in the second half of 2013. K&S will occupy 69 per cent of the net lettable area for a 10-year lease term with the option to renew for two additional 10-year terms.
MIT – DBSV
Diversification is key
• 4Q12 DPU of 2.22 Scts slightly ahead, full year DPU of 8.4 Scts is 6% above our forecasts
• Rental growth profile expected to moderate
• Maintain BUY; TP raised to S$1.30
Highlights
4Q12 DPU of 2.22 Scts slightly ahead of estimates. Mapletree Industrial Trust (MINT) reported gross revenue and net property income of S$66.3m and S$46m respectively, representing 20.8% and 23.4% growth above forecasts. The stronger performance was largely attributed to the contribution from its newly acquired JTC portfolio of eight flatted-factories and three Amenity Centers, supported by portfolio wide positive rental reversions. The new portfolio contributed c.63% of topline growth this quarter. As a result, distributable income of S$35.8m was 28% above forecasts, translating to a DPU of 2.22 Scts.
Positive revaluations of S$94m. NAV was lifted to S$1.03 (from S$0.95), due to stronger occupancies and rental income achieved. Gearing headed slightly lower to 37.8%.
Resilient portfolio, healthy reversions. MINT’s diversified portfolio of industrial properties continued to exhibit resilience, achieving reversions of between 15% and 29%. Occupancies were stable at 94.9% in 4Q12 (vs 95.1% in 3Q12) and the average portfolio rental at S$1.55 psf/mth was slightly higher. Retention rates remained healthy at 76.1%.
Our View
Stable performance expected; renewal gap should narrow in our view. Looking ahead, we believe performance will remain relatively stable with portfolio near full occupancy. The manager’s strategy to lengthen its WALE has met with good response, with tenants offered leases with longer tenures. While there will be organic growth from expiring rents in view of the positive spread between passing and market rents, we expect the pace of growth to moderate given the uncertain operating environment with end tenants facing cost pressures on all front.
Recommendation
Maintain BUY, TP S$1.30. Our numbers are adjusted slightly higher to account for higher occupancy and lower than expected interest costs. Our TP of is raised to S$1.30 as we roll forward our valuations to FY13. Maintain BUY.