Mapletree Industrial Trust - DBS Research 2018-04-30: Value-accretive Project At 7 Tai Seng Drive

Mapletree Industrial Trust - DBS Vickers 2018-04-30: Value-accretive Project At 7 Tai Seng Drive MAPLETREE INDUSTRIAL TRUST SGX: ME8U

Mapletree Industrial Trust - Value-accretive Project At 7 Tai Seng Drive

  • Proposed acquisition of 7 Tai Seng Drive for S$68.0m.
  • Plans to convert property into a hi-specification industrial building.
  • Securing end tenant for 25 years improves income visibility.
  • Maintain BUY, Target Price S$2.22.

What’s New

7 Tai Seng Drive property to be acquired by Mapletree Industrial Trust (MINT).

  • On 27 April, Mapletree Industrial Trust (MINT) announced that it had entered into a novation agreement with Sponsor Mapletree Investments Pte Ltd and the Vendor, Mapletree Logistics Trust (MLT) in respect of the Option to Purchase (OTO) – previously granted to the Sponsor on 11 Aug 2017 - 7 Tai Seng Drive in Singapore for S$68.0m.
  • The property was valued by independent valuers (Cushman & Wakefield and Savills), with an average valuation of S$69.0m. This is notably higher than the valuation of S$36.1m on MLT’s books largely due to a “change in use” for the property, in our view.

Potential repositioning from warehouse to data center adds visibility to MINT’s firm growth pipeline.

  • The property at 7 Tai Seng Drive is a seven-storey warehouse building located within the Paya Lebar Industrial Park, a logistics and industrial cluster. It has a gross floor area of about 256,600 square feet (sq ft) on a land area of about 96,500 sq ft. The site is zoned for Business 2 use with its land lease tenure of 30 years commencing from 16 March 1993 ( < 5 years remaining) and an option to extend for an additional 30 years.
  • Together with the novation agreement, Mapletree Industrial Trust has also signed an agreement to lease the property to an established information and communication technology company, which has committed to an initial term of 25 years with annual rental escalations.
  • Pursuant to the agreement, Mapletree Industrial Trust will undertake c.S$95m worth of upgrading works to increase the power capacity and floor loading capacity, and to provide additional telecommunication infrastructure as well as space for mechanical and electrical equipment. Judging by the high-specification upgrades, we believe that Mapletree Industrial Trust will likely be repositioning the warehouse into a data centre, in our view.

Building a future pipeline from a value-accretive development deal.

  • Subject to regulatory approval, we believe that this development opportunity makes perfect sense for the REIT to undertake. The securing of a tenant on a long term contract also means that income stream upon development completion is secured and certain.
  • While it will only be accretive to Mapletree Industrial Trust’s distributable income from the second half of 2019 (FY20F), we are positive on the strategic addition of 7 Tai Seng Drive as it improves portfolio earnings visibility and quality. 
  • While potential yields for the asset have not been disclosed, but based on Mapletree Industrial Trust’s strong track record of offering customised real estate solutions, would likely achieve yields of 6.5%-7% - similar to its historical average.
  • We have not priced in this acquisition, subject to JTC approval. 
  • Mapletree Industrial Trust, with ample debt capacity to debt fund this development, is expected to see its gearing rise slightly to c.33%, still at a comfortable level.

Derek TAN DBS Vickers | Carmen TAY DBS Vickers | Melvin SONG CFA DBS Vickers | 2018-04-30
SGX Stock Analyst Report BUY Maintain BUY 2.22 Same 2.22