Mapletree Industrial Trust: Continued moderation in rental reversions
- 1QFY16 DPU grew 8.8% YoY.
- Some negative rental reversions.
- Industry headwinds remain.
1QFY16 results within our expectations
- Mapletree Industrial Trust (MIT) reported 1QFY16 revenue of S$81.6m, representing an increase of 4.1% YoY. This formed 25.2% of our FY16 projection.
- DPU grew at a stronger pace of 8.8% YoY to 2.73 S cents, due partly to a NPI margin expansion of 1.5 ppt to 73.7%. This constituted 26.1% of our full-year forecast, which we view as in line with our expectations.
- Operating metrics for MIT remained largely solid, with an improvement seen in its occupancy rate from 90.2% to 93.5%.
- Overall portfolio passing rent inched up slightly from S$1.84 psf per month in 4QFY15 to S$1.86 psf per month in 1QFY16.
- Aggregate leverage ratio now stands at 30%, with 88% of its debt fixed/hedged.
Negative rental reversions for two segments
- Despite the decent financial performance for 1QFY16, a worrying trend came in the form of negative rental reversions for renewal leases recorded for its Business Park Buildings (-1.5%) and Stack-Up/Ramp-Up Buildings (-5.7%) segments.
- Although rental reversions for its Flatted Factories (+3.6%) and Hi-Tech Buildings (+1.9%) came in positive, we note that the momentum has slowed as compared to the respective 9.6% and 10.1% reversion figures achieved in FY15.
- We believe this reflects the tough leasing environment within the industrial sector, amid a backdrop of sluggish economic growth and oversupply concerns.
- MIT’s management has, nevertheless, done a good job in proactively engaging its tenants, as only 9.8% of leases (by revenue) are expiring for the remainder of FY16 (18.8% at start of the financial year).
Maintain SELL
- Industry watchers are expecting rents for multiuser industrial developments to ease further, while business parks and higher specification buildings are expected to fare better.
- We are retaining our forecasts, S$1.34 fair value estimate and SELL rating on MIT, given evident industry headwinds.
- In addition, we believe valuations are unappealing at current price level, as MIT’s yield spread of 4.1 ppt against the Singapore Government 10-year bond yield comes in at ~1.5 standard deviations below the historical mean of 5.0 ppt.
(Wong Teck Ching Andy)
Source: http://www.ocbcresearch.com/
