• 3QFY17 DPU + 0.4% YoY
• Gearing ratio remains healthy at 29.4%
• BUY with higher FV

3QFY17 results met our expectations

Mapletree Industrial Trust (MIT) reported its 3QFY17 results which came in within our expectations. Gross revenue rose 1.4% YoY to S$84.5m. This was underpinned by higher rental rates achieved across all property segments and contribution arising from Phase One of the builtto-suit development for Hewlett-Packard Singapore from mid-December 2016. NPI grew at a slightly faster pace of 2.5% to S$63.4m, which translates into a 0.8 ppt YoY improvement in its NPI margin to 75.1%.

DPU was up 0.4% YoY to 2.83 S cents, as MIT incurred more borrowing costs (+7.8% YoY) partly due to higher rates from the replacement of expired interest rate hedges. For 9MFY17, MIT’s gross revenue and NPI increased 2.1% and 4.2% to S$252.8m and S$190.9m, respectively, with the latter constituting 75.6% of our full-year forecast. DPU of 8.51 S cents represented growth of 2.0% and accounted for 75.4% our FY17 projection.

Firm performance despite industry headwinds

As a testament to MIT’s resilience, its average portfolio passing rent inched up 0.5% QoQ to S$1.93 psf/month in 3QFY17 despite continued weakness in industrial market rents. In terms of renewal leases signed during 3QFY17, positive rental reversions were achieved across most of its property segments: Flatted Factories +2.3%, Stack-up/Ramp-up Buildings +3.5%, Hi-Tech Buildings +0.5%.

Rental reversions for its Business Park Buildings segment came in flat. MIT’s overall portfolio occupancy was largely stable at 92.1%, versus 92.5% as at end- 2QFY17.

Maintain BUY

Given this set of in-line results, we retain our forecasts. However, we lower our cost of equity assumption to 7.5% from 8.1%. Although we adopt a higher risk-free rate assumption of 2.7% (previously 2.4%), this is offset by a lower beta to take into account MIT’s continued resilient performance, robust DPU growth expectation in FY18 (+6.3%) and strong balance sheet (gearing ratio of 29.4% as at 31 Dec 2016 amongst the lowest within S-REITs universe).

Taking these factors into account, our fair value estimate is bumped up from S$1.67 to S$1.79. Reiterate BUY on MIT, supported by an attractive FY18F distribution yield of 7.3% (+1 SD from its historical forward mean since its listing).

Source: OCBC Research - 25 Jan 2017