Mapletree Industrial Trust - Phillip Securities 2016-04-11: Low gearing – Still has firepower for more bang

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust Low gearing – Still has firepower for more bang

Mapletree Industrial Trust (MINT) was listed on the Mainboard of the Singapore Exchange on 21 October 2010, with an Offering Price of S$0.93 per unit.
Investment strategy of investing in a portfolio of income-producing real estate for industrial purposes, wholly or partially in Singapore.

Sponsor backing from Mapletree Investments Pte Ltd with Rights of First Refusal (ROFR).
Managed by Mapletree Industrial Trust Management Ltd, a wholly-owned subsidiary of Mapletree Investments Pte Ltd and Trustee is DBS Trustee Limited. The Manager is paid a Base Fee pegged to the Deposited Property and a Performance Fee pegged to Net property income. Trustee fees are pegged to the value of Deposited Property.
Portfolio consists of 84 properties located in Singapore across five property types of: Flatted Factories (24 Clusters, 57 properties), Hi-Tech Buildings (8 Clusters, 12 properties), Business Park Buildings (3 properties), Stack-Up/Ramp-up Buildings (2 Clusters, 7 properties) and Light Industrial Buildings (5 properties).
Portfolio has a lettable area of 14.8mn sq ft and value of S$3.4bn as at 30 December 2015.
Distributions are made on a quarterly basis. The distribution policy is 100% payout from the Listing Date to 31 March 2012; and at least 90% payout thereafter. The payout has been maintained at 100% since the Listing Date.
Distribution Reinvestment Plan (DRP) was introduced in 3QFY03/13 (Fiscal Year End March) and has been suspended after the 3QFY03/16 distribution.

GDP grew 2.0% in 2015; positive growth expected in 2016. Ministry of Trade and Industry (MTI) forecasts modest growth of 1%~3% in 2016. Private-sector economists forecast 1.9% growth in 2016.
Demand-supply dynamics look unfavourable, but... industrial real estate has a trackrecord of being relatively resilient.
Flatted Factories are the bedrock of MINT's portfolio. The properties are centrally located and have a track-record of high occupancy and good tenant retention. Moreover, new supply is not in direct competition with MINT.
Moving up the value chain by growing the Hi-Tech Buildings segment. This is in line with developments as the economy evolves towards value-added manufacturing.
Boost to distribution per unit (DPU) on completion of build to suit (BTS) project. This will come about after the Hewlett-Packard build-to-suit (BTS) project reaches steady state and is expected to contribute c.10% of portfolio Gross rental income.
MINT's low gearing will be the firepower to keep going. Low gearing of 29.3% provides MINT with a debt headroom of c.S$580mn by our estimate (assume 40.0% gearing), to make acquisitions and potentially grow the portfolio by c.17%.

MINT has a track record of stable income distribution underpinned by healthy tenant retention and a high portfolio occupancy.
While we see near term challenges in the industrial real estate sector and execution risks from a portfolio undergoing transition, one cannot ignore the fact that MINT still has the firepower to gear up and grow its portfolio.
We have a DDM valuation of S$1.70 for MINT.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-04-11

Phillip Securities SGX Stock Analyst Report ACCUMULATE Initiate ACCUMULATE 1.70 Same 1.70