Strong operating performance
- Positive set of results, revenue +4.1% YoY, NPI +6.2%, DPU +8.8%.
- Underlying operating improvement of higher occupancies and rising passing rent defy a weak and oversupplied market.
- Maintain BUY with an unchanged TP of SGD1.77 (DDM, CoE 8.5%, LTG 2%). Attractive FY3/16-18 yields of 6.6-7.9%.
Defying a weak and oversupplied market
- 1Q results were positive at both the operating as well as financial level.
- Revenue rose 4.1% YoY to SGD81.6m, while NPI rose 6.2% YoY to SGD60.2m, forming 25.6% and 25.8% of our full year estimates.
- DPU beat expectations at SGD2.73 (+8.8% YoY), 26.4% of full year estimates.
- Unlike the results from the warehousing REITs MLT and Cache, there was no hint of rent incentives accelerating property expenses, even though factory space – which MIT has 84% NPI exposure – is also relatively oversupplied at 169% annual demand (warehousing 213%).
- In fact overall occupancies grew QoQ from 90.2% to 93.5%, the first increase after seven quarters of downtrend.
- Portfolio passing rent also grew QoQ from SGD1.84 to 1.86.
- All in all a commendable set of results in a tough market of weak demand and strong supply.
- It should be noted that the improvement was not all due to the high-tech factory segment receiving a boost from the Equinix-BTS asset contributing a full quarter, occupancies for flatted factories, light industrial, stack-up ramp-ups and business parks all improved QoQ as well.
Underlying operating numbers suggest upside
- The improvement in the underlying operating numbers suggests upside risk to our FY3/16 estimates, which we will review post analyst briefing.
- We maintain BUY with an unchanged TP of SGD1.77.
- Come end of FY3/17, Hewlett-Packard BTS project should start contributing, driving substantial FY3/18 DPU growth to 12.3cts from 10.8cts.
- FY3/16-18 yields are attractive at 6.6-7.9%.
(Joshua Tan)
Source: http://www.maybank-ke.com.sg
