• 2QFY17 DPU grew 1.4% YoY
• Mixed rental reversions for renewals
• HP BTS Phase One obtains TOP

2QFY17 results met our expectations

Mapletree Industrial Trust (MIT) reported its 2QFY17 results which came in within our expectations. Gross revenue rose 1.8% YoY to S$84.2m due to higher rental rates achieved across all property segments and higher occupancy at its Hi-Tech Buildings segment. NPI rose 4.3% to S$63.6m, which translates into a NPI margin of 75.6% (+1.8 ppt YoY). DPU was up 1.4% to 2.83 S cents. For 1HFY17, MIT’s gross revenue increased 2.4% to S$168.3m and DPU grew 2.9% to 5.68 S cents. These formed 49.5% and 50.9% of our FY17 forecasts, respectively.

Tough operating conditions weigh but still largely resilient

MIT’s average portfolio passing rent was unchanged QoQ at S$1.92 psf/month. This bucked the trend of 11 consecutive quarters of QoQ growth, but is still a commendable level, given declining market rents and subdued macroeconomic conditions. In terms of renewal leases signed during 2QFY17, positive rental reversions were achieved for Flatted Factories (+2.7%) and Business Park Buildings (+0.5%), but negative rental reversions were registered at Hi-Tech Buildings (-0.5%) and Stack-up/Rampup Buildings (-2.3%). Overall portfolio occupancy slipped slightly from 93.0% (as at 30 Jun 2016) to 92.5%. Looking ahead, MIT expects continued pressure on market rents and occupancy given industry headwinds which include oversupply concerns.

Maintain HOLD

MIT announced last Friday that the Phase One of the build-to-suit (BTS) development for HP Singapore has obtained TOP. Rental contribution is expected to start in Dec this year. As a recap, Phase One of this BTS project comprises a 11- storey Hi-Tech Building with GFA of 421k sq ft. Phase Two, which is on track for completion in 2Q17, encompasses a 8-storey Hi-Tech Building with GFA of 403.5k sq ft. HP has committed to lease the entire BTS facility for an initial period of 10.5 years, with an option to renew for two additional five-year terms.

We fine-tune our assumptions to incorporate an even distribution of the 6-month rent-free periods over 18 months for both phases. Hence, our DPU forecasts for FY16 and FY17 is lifted by 1.3% and 0.7%, respectively. However, our DDM-derived fair value remains unchanged at S$1.67. Maintain HOLD.

Source: OCBC Research - 26 Oct 2016