On track

A dip in Business Park reversionary rents marred an otherwise stellar quarter after itsAugust acquisitions and equity fund-raising. We anticipate continued strength in the other segments which shouldoffsetthe stress in Business Parksgoing forward.

3Q/9M12 DPU meets consensus and our expectations, at 27%/ 78% of our estimates. We keep our estimates and DDM-based target price (disc rate: 8.6%). Maintain Outperform.

Biz Park reversions fell

3Q DPU shrank 9.2% yoy due to new units issued in Aug 11. Qoq growth was a positive 5.4%, led by improved portfolio occupancy (95.1%; +0.6% pt) and positive rental reversions for Flatted Factories (+26.8%), Stack-Up/Ramp-Up Buildings (27.5%) and Warehouses (31.5%) over the last renewal period, typically three years ago. In contrast, reversions in Business Parks fell 9.6%. New leases contracted here averaged S$3.92, 5.1% below renewal rates, hinting at more weakness to come.

Lengthening WALE

As at Dec 11, only 3.2% of its portfolio (by gross revenue) remained due for the rest of FY12. In future renewals, management intends to encourage tenants to take up longer leases of more than three years, to lengthen its portfolio weighted average lease to expiry (WALE) of 2.4 years (vs. REIT peers’ five years or so).

Two AEI projects to take off

Management announced AEI plans for Toa Payoh North Cluster 1 and Woodlands Central Cluster. While costs have not been finalised, capex should be S$30m-40m for each at a yield-on-cost of 9%. When completed, an additional 200,000sf (1% of portfolio GFA) will be created. Completion is anticipated by 2H12 with no major disruptions to revenue contributions. The AEI was catalysed by the expansion plans of existing tenants.

MIT Q3 distributable income up 29%

Gross revenue also increased 25% year-on-year to $65.7 million

MAPLETREE Industrial Trust (MIT), which was listed in October 2010, saw its distributable income rise 29.3 per cent to $35.2 million for its third quarter ended Dec 31, 2011, as compared to the previous year’s proforma results of $27.2 million.

The distributable income was also 28.1 per cent ahead of the forecast $27.5 million.

This led to MIT offering a distribution per unit (DPU) of 2.16 cents for the period – 14.9 per cent higher than the forecast of 1.88 cents. This translates to an annualised yield of 8.15 per cent as of yesterday’s closing price of $1.06.

Gross revenue also grew 25.3 per cent year-on-year to $65.7 million during Q3, due mainly to improved occupancy rates and positive rental revisions for assets such as flatted factories, stack-up/ramp-up buildings, and warehouses.

Net property income (NPI) for the period also climbed 24.6 per cent to $45.6 million from its proforma result of $36.6 million a year back.

Year-to-date, distributable income also rose 24.4 per cent to $95.9 million year-on-year, while NPI climbed to $125.3 million, up 20.5 per cent over the same period.

Average portfolio occupancy also remained healthy, rising to 95.1 per cent from 94.5 per cent in the previous quarter.

MIT’s manager has two asset enhancement initiatives planned.

One will involve the development of a new high- tech industrial building and an amenity block in Toa Payoh North 1 Cluster, while the other would comprise an extension wing, a multi-storey car park, and a canteen in the Woodlands Central Cluster.

The two initiatives are expected to add about 200,000 square feet of gross floor area to MIT’s portfolio, said Tham Kuo Wei, chief executive officer of MIT’s manager.

Yesterday, the counter rose half a cent or 0.5 per cent to $1.06.

Resilient portfolio; healthy reversions

At a Glance

• 2Q12 DPU of 2.05 Scts in line (1H12 forms 51% of our FY12 estimates)

• Resilient portfolio; healthy reversions

• BUY maintained, TP revised to S$1.28 based on DCF

Comment on Results

2Q12 DPU of 2.05 Scts in line. Mapletree Industrial Trust (“MINT”) reported gross revenue and net property income of S$59.0m and S$41.1m respectively, 11% and 13% higher than IPO forecasts but in line with our estimates. The stronger performance was largely attributed to the contribution from its newly acquired JTC portfolio of 8 flatted-factories and 3 Amenity Centers. The new portfolio contributed c4.2% of gross revenues for the quarter. Excluding new acquisitions, MINT showed strong organic performance with its portfolio achieving higher rental and occupancy rates. As a result, distributable income was above IPO forecasts by 17%; translating to a DPU of 2.05 Scts. 1H12 results formed 51% of our FY12 estimates.

Resilient portfolio; healthy reversions. MINT’s diversified portfolio of industrial properties remained resilient achieving higher average occupancies 94.5% in 2Q12 ( vs 94.3% in 1Q12) and slightly higher portfolio average rental of S$1.54 psf/mth. After the coming off of its rental caps, average gap between renewals and new leases have narrowed and remained 10-40% higher than passing rents. Retention rates remained healthy at 79.4%. Looking ahead, performance should be relatively stable given that only c8.2% of topline is up for renewal over the rest of FY12. To improve portfolio WALE (currently at 2.7 years) and income certainty for the REIT, the manager looks to offer tenants longer-term leases with staggered rental escalations.

Healthy financial metrics . Balance sheet remains strong, with a gearing of 39.2% and an interest coverage ratio of over 6.4x. Its weighted average debt tenor remains 2.7 years with evenly spaced out maturities over the next 5 years.

Recommendation

BUY call maintained. Forward yields of 6.9-7.4% remain attractive in our view, given a diversified portfolio and strong sponsor backing. TP of S$1.28 offers total return of 18%.

Robust 2Q

2Q12 marked the first quarter since the expiry of rental caps on MINT’s flatted factories. Positives were sustained occupancy and stronger rental reversions. Leasing and organic-growth potential

remains strong given an under-rented portfolio.

2Q12/1H12 DPU is in line with consensus and our estimates, at 26%/ 51% of FY11. We trim interest costs but keep our DDM-based target price (discount rate: 8.6%). Maintain Outperform.

Stronger rental reversions

We continue to see strong organic growth potential from an under-rented portfolio. Positives were stronger rental reversions in 2Q from the expiry of rental caps at end-Jun. While portfolio retention fell to 79% from 89% in 1Q, this was largely in keeping with management’s expectation, given its push on rents after the expiry of rental caps. Portfolio occupancy also crept up to 94.5% from 94.3%.

Continued resilience expected

Leasing enquiries remain strong while arrears (deemed typically a sign of distress among tenants) are still healthy. While there has been a slowdown in enquiries from the electronics sector given weakness in the sector, this slowdown is not new. Stronger demand from biomed and precision engineering etc. also compensates. To enhance its portfolio resilience and visibility, management is looking at introducing packages with longer lease tenures and rental step-ups.

Asset leverage within comfort zone

DPU should continue to benefit from low all-in funding costs of 2.2%. While asset leverage is fairly high at 39%, this is within management’s comfort level of 45% (given stability of its portfolio) with FY12 maturing debt well-supported by existing lines of credit.

Mapletree Ind Trust Q2 DPU 10.8% above forecast

MAPLETREE Industrial Trust (MIT), which was listed in October last year, saw its distributable income increase 26.6 per cent to $31.6 million for the fiscal second quarter ended Sept 30, 2011, from a proforma $25.0 million the year before.

The distributable income was also 16.6 per cent higher than the forecast $27.1 million. MIT achieved a distribution per unit (DPU) of 2.05 cents – 10.8 per cent higher than the forecast 1.85 cents.

MIT, part of the Mapletree group, invests in income-producing real estate used primarily for industrial purposes – such as business park buildings and flatted factories – and real estate-related assets.

Its gross revenue climbed 18 per cent year-on-year to $59.4 million in the September quarter, due largely to higher occupancies in its properties and higher rental secured from both new and renewed leases that quarter, said its results announcement.

It also said that the acquisition of eight flatted factories and three amenity centres from JTC Corporation on Aug 26 also contributed to the increase in gross revenue – with the properties contributing about 4.3 per cent of the total gross revenue for the quarter.

With the acquisitions, MIT’s portfolio now comprises 81 properties located across Singapore.

The latest acquisitions were partly financed by new equity through an equity fund raising exercise completed on Aug 24, which raised about $176.9 million through the issue of about 165.5 million new MIT units.

MIT’s net property income for the period grew 22.9 per cent to $41.5 million. Its net income before tax and distribution rose 23.6 per cent to $30.4 million.

MIT had paid out an advance DPU of 1.14 cents to eligible unitholders on Aug 31, which represented the distribution from July 1 to Aug 22 to unitholders existing as at Aug 4 and prior to the issuance of the new units pursuant to the equity fund raising.

The payout of the distribution for the enlarged units in issue for the remaining period from Aug 23 to Sept 30 is 0.91 cents per unit. Accordingly, the weighted average DPU for the quarter is 2.05 cents.

Looking ahead, Mapletree Industrial Trust Management – the manager of MIT – said that if confidence continues to weaken across the global economies, the outlook in the manufacturing sector will be dampened. ‘Barring any additional shocks to the global economy, the manager expects market rents to stay flat in the near term.’

‘The MIT portfolio is larger and more diversified after the recent acquisition of the flatted factories portfolio from JTC. With a healthy balance sheet and only 8.2 per cent of leases due for renewal in the next six months, the manager is on track to exceed the forecast estimates for (the) financial year 2011 as stated in the IPO prospectus,’ it added.

MIT shares finished up half a cent at $1.135 yesterday.