Mapletree Industrial Trust (MINT SP) - Maybank Kim Eng 2017-04-18: Stability and Growth

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust (MINT SP) - Stability and Growth

MINT’s Singapore-focused industrial portfolio stands out for its resilience and clear growth attributes, underpinned by a large, well-diversified tenant base, with rising contribution from ongoing redevelopment and AEI projects to support an estimated 5.4% DPU CAGR till FY19E.

MINT stands tall on all balance sheet metrics, and with debt headroom estimated at 30% of market cap, is well-placed to deliver on inorganic growth opportunities, which should drive upside to DPU forecasts and valuations.
Initiate at BUY with DDM-based TP of SGD2.00, implying 18% total return upside.

MINT’s strengths lie in
1. its solid management track record, which has helped deliver steady DPU growth since IPO in 2010, led by strong rental reversion momentum from an under-rented portfolio, and
2. assets skewed towards multi-tenanted properties (93% of gross revenue) suggesting low conversion risk.
These are defensive qualities against challenging near term industrial oversupply headwinds.

MINT’s growth drivers are visible and will be led by rising contribution from its ongoing redevelopment initiatives
1. (SGD226m build-to-suit [BTS] facility for Hewlett-Packard,
2. SGD77m AEI project at Kallang Basin 4 Cluster by 1Q18, and the recently announced
3. SGD60m BTS data centre project),
which in aggregate should help drive an estimated 3Y DPU CAGR of 5.4%. These should offset softer near term organic fundamentals at its existing portfolio, with greater emphasis towards tenant retention dampening prospects of rental growth.

MINT stacks up well on all key balance sheet metrics, with lowest funding cost amongst the industrial REITs at 2.6%, and weighted average debt tenure at 3.2 years.
With gearing at 29.4%, and debt headroom at 30% of market cap, MINT is well-positioned for inorganic growth opportunities, both in Singapore and overseas.

Earlier-than-expected pick-up in leasing demand driving improvement in occupancy.
Better-than-anticipated rental reversion trend.
Accretive acquisitions.

Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates.
Termination of long-term leases contributing to weaker portfolio tenant retention rate.
Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-04-18

Maybank Kim Eng SGX Stock Analyst Report BUY Initiate BUY 2.00 Up 1.900