• 3QFY15 DPU up 6.4% YoY
• Positive rental reversions for renewals
• Leasing environment challenging

3QFY15 results within our expectations

Mapletree Industrial Trust (MIT) reported a decent set of 3QFY15 results which was inline with our expectations. Revenue rose 3.3% YoY to S$78.1m, while DPU growth of 6.4% to 2.67 S cents was underpinned by lower borrowing costs and an improved NPI margin (+1.5 ppt to 74.2%) as a result of lower utilities expenses. For 9MFY15, revenue increased 4.6% to S$234.5m, or 75.3% of our FY15 projection. DPU grew 5.0% to 7.78 S cents and constituted 76.0% of our full-year estimate. Average portfolio occupancy dipped slightly from 91.5% in 2QFY15 to 90.8% in 3QFY15 due to the continued relocation of tenants from the Telok Blangah Cluster (11% occupancy rate). Positive rental reversions of 5.9%, 4.8%, 3.2% and 6.9% were achieved for renewal leases for MIT’s Flatted Factories, Hi-Tech Buildings, Business Park Buildings and StackUp/Ramp-Up Buildings, respectively.

Strong financial position

MIT’s balance sheet remains healthy, with an aggregate leverage ratio of 32.8%, as at 31 Dec 2014 (-0.3 ppt QoQ). Management also increased its interest rate hedge ratio from 77% to 86%, thus putting it in a strong position to weather any possible spikes in interest rates in the foreseeable future.

Maintain HOLD

We are keeping our forecasts intact given this set of in-line results. Looking ahead, we expect the leasing environment to remain challenging due to competitive pressures and the soft macroeconomic landscape. Rental reversions are likely to continue to moderate as the gap between MIT’s passing rents and market rents are narrowing. Maintain HOLD on MIT with an unchanged fair value estimate of S$1.43. MIT’s share price has already risen 6.4% YTD, and the stock is now trading at FY15F P/B ratio of 1.3x, which we deem as rich. This is approximately one standard deviation above its average forward P/B ratio since its IPO.

Source: OCBC Research - 21 Jan 2015