Mapletree Industrial Trust - DBS Research 2017-03-06: Value accretive addition to the portfolio

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MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Value accretive addition to the portfolio

• Secured built-to-suit project at S$60m.
• Long term commitment from tenant in excess of 10 years.
• Positive impact to distributions when completed in 2H18.
• Maintain BUY and S$1.90 TP.

What’s New 

• Secured a built-to-suit data-center development. Mapletree Industrial Trust (MINT) announced that it has secured a built-to-suit (BTS) contract to develop a data-center for an established operator for approximately S$60m. The datacenter will be located in the West Region of Singapore and is within a specialised industrial park for data centres (which we believe to be at “Tanjong Kling”) with supporting infrastructure.
• The six-storey purpose-built data center with gross floor area of about 242,000 square feet will be fully leased to the tenant for an initial lease term of more than 10 years with staggered rental escalations as well as renewal options.
• The proposed BTS project is expected to complete in the second half of 2018 and start contributing thereafter.

Our thoughts 

• We are positive on the REIT’s track record in delivering value through development. This will be the third data-center BTS development project undertaken by MINT, which we believe, will be value accretive to the portfolio when completed.
• And, allows the REIT to tap into the fast growing demand for data-centers in the Asia Pacific region.
• While not disclosed yet, we understand that the tenant is an established data-center operator and its long term commitment offers further income diversification to the REIT.
• We understand that BTS is a “shell-and-core” project meaning that MINT will not be exposed to the operational risk and high capex requirements in running and maintaining a data-center, which will be borne by the tenant. We estimate initial yield to be close to 6.5%, which is in line with existing 6.5%-6.75%s for the REIT’s existing projects.
• Assuming the development will be fully funded by debt, we estimated DPU to rise by 1.2%-1.4%. Gearing is estimated to still remain low at < 32%. Our numbers at this point do not include this development yet.

Derek TAN DBS Vickers | Melvin SONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-03-06

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.900 Same 1.900