STI : 3,204.80
Price Target : 12-Month S$ 1.44 (Prev S$ 1.37)
Reversionary upside limits occupancy risks
• 2Q14 results above expectations
• Positive reversions to mitigate occupancy risks at Signature @ Changi Business Park
• Maintain BUY, TP raised to S$1.44
2Q14 results ahead. Despite the cessation of a major lease from Credit Suisse, Mapletree Industrial Trust (MINT) reported an 8% and 12% growth in gross revenues and net property income to S$73.4m and S$54.0m, respectively. Operational performance remains strong, with MINT reporting renewal hikes in the range of 12% to 27%, while new leases were signed up to 42% higher compared to expiry levels, resulting in average portfolio rents of S$1.70 psf. This more than offset the slight dip in occupancies to 93.9% (mainly from its Business Park segment).Net property income margins improved to 73.6% as the Manager undertook larger maintenance and improvement works in previous quarters but should normalize back to 70%-71% subsequently. As a result, distributable income came in 10% higher y-o-y at S$41.1m, translating to a DPU of 2.47 Scts.
Robust reversionary trends to mitigate occupancy risks at Signature building at Changi Business Park. Looking forward, MINT will be renewing close to 12.3% of its revenues in 2H14 with more than half coming from flatted factory space. While pressure from new competing supply of new industrial space and higher business costs are likely to be remain as issues faced by tenants, the Manager believes that these risks are mitigated somewhat given expiring rents are c10%-15% below market levels meaning that it is likely to see the portfolio to deliver a sustain growth momentum.
This will likely mitigate the impact from increased vacancy at Signature @ Changi Business Park from Credit Suisse while another tenant, Lucas Films will also be vacating when their lease ends before the end of this year. The manager expects the back-filling of these vacated space to remain slow and might take up to 6-9 months.
Asset enhancement initiatives and development projects on track. DPU growth is expected to be underpinned by MINT’s series of development and asset enhancement projects : (i) the recently completed Woodlands Central development , built-to-suit (BTS) facility for Kulicke & Soffa is with a secured commitment of 72% of the space and (ii) the remaining asset enhancement projects (Toa Payoh North 1) and BTS project for Equinix in 2HCY14 will incrementally add to earnings in the medium term.
BUY, TP raised to S$1.44. We have tweaked our occupancy and rental reversion assumptions slightly to account for the better than expected achieved rents, resulting in a 1-2% rise in our FY14-15F earnings estimates. TP revised to S$1.44, offering a total return of 12%. Maintain BUY.
Publish date: 24/10/13