Mapletree Industrial Trust - CIMB Research 2018-04-30: Scores A Coup!

Mapletree Industrial Trust - CIMB Research 2018-04-30: Scores A Coup! MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Scores A Coup!

  • Acquisition of 7 Tai Seng has been novated to Mapletree Industrial Trust (MINT) instead of the original buyer, Mapletree Investments. The seller of the property is Mapletree Logistics Trust (MLT).
  • We are positive on the outcome as Mapletree Industrial Trust is able to sign a 25-year lease, which provides another growth lever to the group. Also, development yields are juicier.
  • Maintain ADD. We continue to like Mapletree Industrial Trust for its visible growth trajectory.

Acquisition of 7 Tai Seng novated to MINT

  • Mapletree Industrial Trust (MINT) has executed a novation agreement on the purchase option of 7 Tai Seng with its sponsor, Mapletree Investments, and the vendor of the property, Mapletree Logistics Trust. Recall that the option to acquire the property at a purchase consideration of S$68m was granted to the sponsor by Mapletree Logistics Trust (MLT).
  • Mapletree Industrial Trust has also signed an agreement to lease the building to a tenant for an initial term of 25 years with annual rental escalations. The tenant has an option to renew the lease for the remaining land lease tenure. We understand that the lease is a shell-and- core one.
  • We believe that the building will be upgraded into a data centre. Mapletree Industrial Trust will undertake upgrading works to increase the power and floor loading capacity and provide additional telecommunication infrastructure as well as space for mechanical and electrical (M&E) equipment.
  • Upgrading works are expected to be completed in 2H19. The total cost of the acquisition and the upgrading works is expected to be S$95m.
  • The seven-storey property is located within the Tai Seng Industrial Estate. It has a GFA of c.256k sq ft on a land area of c.96.5k sq ft. The site is zoned for Business 2 use with its land lease tenure of 30 years commencing from Mar 1993 (c.5 years remaining) with an option to extend for an additional 30 years. We estimate the land premium for the 30 years extension is around S$2.5m.

Scores a coup!

  • One of the key reasons behind the novation was Mapletree Industrial Trust’s ability to bring in a client/long-term off-taker to the table. We understand that this client had other options so the yield from this lease is competitive. At this juncture, we estimate the NPI yield to be in the region of sub-7%.
  • Nonetheless, we are still positive on this development given the long-term lease as well as because it provides an additional lever to Mapletree Industrial Trust’s growth trajectory. 
  • We also like that Mapletree Industrial Trust is developing the project instead of acquiring a stabilised 7 Tai Seng from the sponsor in the future as development yields are generally juicier.

Maintain ADD and unchanged DDM-based target price (S$2.12)

  • We continue to like Mapletree Industrial Trust for its visible growth trajectory. 
  • We forecast a 2-year 4.6% DPU CAGR through to FY20F, backed by full-year contribution of the US data centres in FY19F and the ramp-up of 70A Kallang Place in FY19F-20F and the BTS data centre in FY20F. 
  • Downside risks include higher rate hikes and valuation risk.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | 2018-04-30
SGX Stock Analyst Report ADD Maintain ADD 2.120 Same 2.120