Mapletree Industrial Trust - Is it struggling to fill space Credit Suisse vacated at 'The Signature'?

5/11/2013 – Mapletree Industrial Trust (MIT) completed the customised development of corporate headquarters for Kulicke & Soffa at Serangoon North Avenue 5 on October 4.

Kulicke & Soffa will occupy 69% of the net lettable area for 10 years, with the option to renew for two more 10-year terms.

The remaining space would be leased out to multiple users.
MIT just announced earnings for Q2 FY14:

Gross Revenue: +7.6% to S$73.4 mln
Net Property Income: +11.6% to S$54 mln
Cash flow from operations: S$50.7 mln vs S$45.6 mln
DPU: 2.47 cents per unit vs 2.29 cents per unit

Analysts Pang Ti Wee and Donald Chua at CIMB find Q2 results in-line with their estimates.

MIT's DPU in the first half of FY14 makes 54% of CIMB's full-year DPU estimate.

Therefore, CIMB has raised its DPU estimates for FY15 and FY16 in the anticipation of a better rental reversion.

The broker also points out the Trust's mandate to invest in industrial properties only within Singapore expires this month.

So, MIT can now acquire foreign industrial properties.

CIMB suggests Iskandar (Malaysia) could be a 'natural choice' for the REIT.

CIMB maintains a NEUTRAL rating on the Trust with a revised target price of S$1.48 compared to S$1.41 previously.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Is it struggling to fill vacant space at 'The Signature'?

According to slide 15 of its Q2 earnings presentation, MIT's portfolio occupancy slipped to 93.9% in Q2 from 95.5% in Q1.

Its average passing rent was marginally lower at S$1.70 psf/month, from S$1.71 psf/month in the previous quarter.

MIT's portfolio occupancy was lower due to a drop in occupancy rates at its 'business park buildings' and 'Hi-tech buildings' (refer slide 16).

The passing rent at its 'business park buildings' dropped to S$3.70 psf/month in Q2, from S$3.97 psf/month in Q1 (refer slide 17 of Q2 earnings presentation and Q1 earnings presentation).

In fact, the new leases in Q2 were signed at S$3.68 psf/month which was sharply lower than S$3.89 psf/month in Q1.

Overall, the Trust's tenant retention rate slipped to 64.4% from 84.1% a quarter earlier (refer slide 18 of Q1 and Q2 presentations).

Analysts Pang Ti Wee and Donald Chua at CIMB reveal a temporary dip at 'The Signature' as Credit Suisse vacated the leasehold space.

'The Signature' is a nine-storey building at Changi Business Park.

Therefore, it seems that the drop in performance indicators of the Trust's 'business park buildings' is largely due to the trouble at 'The Signature'.

That makes us curious about the developments at 'The Signature'.

Is the Trust struggling to fill the vacant space?

Why couldn't it retain Credit Suisse?

And why did the passing rent for new leases at 'business park buildings' drop sharply in Q2?

Question

2. Has it short-listed foreign acquisition targets?

The Trust's mandate to invest purely within Singapore expires in October.

Therefore, has it short-listed the targets overseas?

CIMB suggests Iskandar region could be of interest for the Trust.

Question

3. What happened to the upfront land premium it paid to JTC in Q4 last year?

(Total:7 questions)

We have sent these questions to the Trust (cheng.muilian@mapletree.com.sg) to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).

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