• S$84.45mn gross revenue in line with our forecast of S$84.76mn
• 83 cents DPU exceeded our forecast of 2.69 cents by 5.2% (3QFY16: 2.82 cents)

Early termination of Johnson & Johnson lease to impact The Strategy property

Johnson & Johnson (J&J) has confirmed that it will be terminating its lease nine months ahead on September 30, 2017 with a compensation of S$3.1mn, which covers for six months of rent. J&J takes up 158,800 sq ft, or 28% of NLA at The Strategy; J&J accounts for 2.2% of MINT’s GRI. The manager has not secured a replacement tenant and expects that it would take nine to 12 months to fill up the vacated space. We have lowered our GRI assumption for the Business Park Buildings segment accordingly. The manager will be paying out the S$3.1mn in distributions during FY18.

Occupancy remains healthy, but dips marginally; average passing rent maintained

Portfolio occupancy dipped marginally quarter-on-quarter (qoq) to 92.1% from 92.5%. Average portfolio passing rent was 1 cent higher qoq at S$1.93 psf/month. Rental reversions during the quarter were flat to low positive single-digit across the various Building segments; and portfolio weighted average was +2.1%. With reference to JTC giving rebates, tenant exposure to the O&G sector at MINT is small, and the manager has not given any adjustments to any tenants across all the trade sectors. Qoq dip in occupancy for the Hi-Tech Buildings segment was due to a timing issue between completion of Phase One of the Hewlett-Packard (HP) Build-to-suit (BTS) project and HP moving into the premises. As such, occupancy should reverse higher in the next quarter.

Absence of concentration risk from FY18 lease expiry profile, apart from J&J

Portfolio weighted average lease expiry (WALE) stands at 3.2 years, higher qoq with Phase One of the HP BTS project included into the portfolio. In our view, the 2.7% of leases expiring in 4QFY17 do not pose a threat to the portfolio. The manager commented that 31% expiring in FY18 is not without precedence, and the team had worked through similar level in the earlier days of the REIT. Other than the J&J lease outlined above, there are no concentrated leases expiring in FY18, so expiries should be manageable.

Maintain “Accumulate” with unchanged target price of S$1.74

At 29.4% gearing, Mapletree Industrial Trust (MINT) has by far one of the lowest gearing within the S-REIT universe. This gives it the flexibility to grow the portfolio inorganically. We are expecting some short-term pain with lower yoy DPU over the next two quarters, due to the rent free-period for the Hewlett-Packard BTS being spread across 18 months. Further out, we expect flat yoy growth in DPU due to termination of the J&J lease. Our target price is 1.28x FY17e P/NAV.