Mapletree Industrial Trust - OCBC Investment 2017-03-29: Scaling up the value chain

Mapletree Industrial Trust - OCBC Investment 2017-03-29: Scaling up the value chain MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Scaling up the value chain

  • Third BTS data centre contract.
  • Enhanced stability and visibility.
  • BUY with higher FV.

Deepening its reach within data centre space 

  • Mapletree Industrial Trust (MIT) recently announced that it had successfully clinched a contract for the development of a build-to-suit (BTS) data centre for an established data centre operator. The total development cost comes in at an estimated S$60m. 
  • Based on our estimate, the NPI yield on cost for this project works out to be 6.5%, which is slightly lower than its BTS project for Equinix in 2015 (~7%). 
  • The compression in yield is likely a result of increased competition within the data centre industry here. However, we are positive on this deal, as the property will be fully leased to the client within the InfoComm sector for an initial lease term of more than 10 years and the structure of the lease includes staggered rental escalations and renewal options.
  • This would enhance income stability and visibility to unitholders, in our view. In addition, we believe this contract win is a strong affirmation of MIT’s capabilities. 
  • This will be MIT’s third data centre development in its portfolio, and the successful completion of this project (expected in 2HCY18) would further reinforce MIT’s track record and reputation within the data centre industry.

Balance sheet to remain healthy 

  • We expect MIT to finance this BTS data centre project with debt and internal resources. Its balance sheet will remain healthy, in our view, with a forecasted gearing ratio of 33.7% by endFY19.

Raising our terminal growth rate assumption 

  • Given management’s continued strategic drive to scale up the value chain by increasing its focus on growing its Hi-Tech Buildings segment and providing customised industrial real estate solutions to its clients, we believe this warrants a higher terminal growth rate assumption, which we now raise from 0.5% to 1% in our dividend discount model. 
  • Coupled with a higher DPU forecast of 0.2%-0.8% for FY19F to FY21F, we bump up our fair value estimate to S$1.88 from S$1.79
  • Since our upgrade on MIT to a ‘Buy’ on 24 Nov 2016, its share price has appreciated 12.5%, outperforming the FTSE Straits Times REIT Index (+5.8%) and STI (+11.2%).
  • Supported by FY18F distribution yield of 6.8%, we reiterate our BUY rating on MIT.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-03-29
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.88 Up 1.670