Mapletree Industrial Trust - CIMB Research 2016-12-05: Accelerating momentum for hi-tech buildings

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MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Accelerating momentum for hi-tech buildings

• MINT’s valuation indicates an attractive entry point is emerging, as it trades at 1.15x FY17 P/BV (1 s.d. below historical mean of 1.11x).
• Underpinned by two development projects, MINT offers one of the highest DPU growth rates among the S-REITs under our coverage.
• We expect flatted factories’ rent to hold and hi-tech building occupancy to rise over the next quarters. Fiercest near-term pressure is likely to be on business parks.

Attractive entry point emerging; reiterate Add

• MINT has de-rated from a high of 1.33x P/BV in Jul to 1.15x FY17 P/BV currently (1 s.d. below historical mean). MINT has seen strong support at the 1.11x P/BV level and the stock now trades at 4% above this support level. 
• We reiterate our Add rating on MINT with an unchanged DDM-based target price (S$1.68).
• Downside risks, while limited, could come from downward pressure on occupancy and rental rates.

Highest DPU growth among S-REITs under our coverage 

• We like MINT as: 
  1. it offers the highest DPU growth rates among the S-REITs under our coverage, 
  2. it has a resilient portfolio, and 
  3. it has a strong balance sheet.
  4. We forecast that MINT will deliver 3-year DPU CAGR of 2.7% in FY16-19F (vs. industrial peers’ average of -1.2%). MINT’s DPU growth is likely to be underpinned by the build-to-suit development project for Hewlett-Packard, which should contribute meaningfully in FY18F onwards, and asset enhancement initiative at Kallang Basin 4, which should contribute in FY19F onwards.
  5. We forecast that hi-tech buildings will account for 30% of the group’s NPI by FY19F (up from 20% in FY16).

What next after the development projects?

• MINT has been scouring overseas for industrial properties in the past 2-3 years to drive earnings growth in the medium term. We understand that the trust could be looking at neighbouring countries or countries that its sponsor has a presence in.
• Additionally, MINT is positive on data centres, as it sees healthy secular demand for them. The REIT already has three data centres in its portfolio and has accumulated some experience in ownership of this asset class. MINT is likely to focus on bolt-on acquisitions in the US and European markets that offer breadth and depth.
• Lastly, MINT has right of first refusal (ROFR) on its sponsor’s Tai Seng development project, which is expected to be completed by end-2016. The development is at Paya Lebar iPark and has direct access to Tai Seng MRT station. It is expected to cost S$250m to develop. The development is unique as it is zoned as a Business-2 white site, permitting multiple uses.

Delving into MINT’s resilient portfolio

• We delve into MINT’s property segments to better understand the portfolio’s underlying resilience and identify areas in which downside risks lie. Overall, we expect portfolio rent to remain stable, although occupancy faces downward pressure.
• We believe that rents for flatted factories will hold up. Furthermore, we expect hi-tech building occupancy to improve over the next few quarters. These two segments should offset vacancy risk for business parks and stack-up/ramp-up buildings. Light industrial buildings could also be negatively affected by multi-tenanted building conversion.

Yeo Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-12-05

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