Mapletree Industrial Trust’s DPU growth to moderate under distribution reinvestment plan

But its portfolio is resilient against JTC’s new rules.

Mapletree Industrial Trust’s distributable income will grow at an impressive rate within the next three years, but its DPU will remain flat in FY16 and FY17 due to an enlarged unit base assumption from MIT’s Distribution Reinvestment Plan.

According to OCBC, MIT’s distributable income is projected to increase at a CAGR of 4.4% from FY14-FY17F. However, its DPU growth will be flat in both FY16 and FY17 after a forecasted 3.2% rise in FY15.

“We believe a primary strength of MIT is its relative resilience to recent regulatory changes introduced by JTC. Only 6% of its GFA and gross revenue are affected by the new JTC sub-letting policy changes. Looking ahead, we expect MIT’s gross revenue to be driven by contributions from its BTS developments and continued rental reversions, albeit at more modest levels,” noted OCBC.

Here’s more from OCBC:
Mapletree Industrial Trust (MIT) is a Singapore-focused REIT which primarily invests in industrial real estate assets in Singapore. Its current portfolio comprises 85 industrial properties with a combined market valuation of S$3.2b, as at 31 Mar 2014.

We value MIT using the dividend discount model (DDM) and derive a fair value estimate of S$1.43 (cost of equity: 7.8%; terminal growth rate: 0.5%). We believe current valuations are fair, with the stock trading at a forward P/B ratio of 1.21x. Hence, we initiate coverage on MIT with a HOLD rating.