Mapletree Industrial Trust - CGS-CIMB Research 2019-07-10: Upgrading Portfolio Through Redevelopments

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Upgrading Portfolio Through Redevelopments

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) plans to redevelop Kolam Ayer Cluster 2 into a hi-tech industrial precinct.
Income volatility from tenant movements could be felt in the medium term but longer-term prospects are positive, with earnings and value accretion.
Maintain ADD with an unchanged Target Price of S$2.32.

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) has announced plans to redevelop the Kolam Ayer Cluster 2 at Kallang Way into a hi-tech industrial precinct. The rationale of the exercise is to reposition the Kolam Ayer 2 flatted factory cluster into a hi-tech precinct and to utilise existing untapped plot ratio. Post redevelopment, this cluster will enjoy a 71% increase in total GFA to 865,600 sq ft.
The proposed exercise will include a built to suit (BTS) facility for a global medical device company, taking up c.24.4% of the enlarged GFA. The anchor tenant has committed to a 15-year lease, with option to renew for another two 5-year terms. In addition, Mapletree Industrial Trust intends to target tenants from high value-add and knowledge-based businesses from advanced manufacturing and ICT sectors for the remaining space.

The redevelopment exercise is subject to approvals from relevant authorities and scheduled to commence construction in 2HCY20 and complete in 2HCY22. The redevelopment exercise is expected to cost S$263m and projected to generate an 8% return. The effect on tenant movements is likely to be felt from 2HFY21. To put this into perspective, this cluster accounted for 1.8% of Mapletree Industrial Trust’s revenue in FY3/19.
Mapletree Industrial Trust has put together a Tenant Assistance Package for existing tenants at the cluster. Tenants will be offered an extended notice period of 12 months at a preferential gross rental rate for their remaining leases at the Kolam Ayer 2 cluster. They will not be required to reinstate their premises and will not need to compensate for early termination if they choose to move out prior to the expiration of their leases. In addition, Mapletree Industrial Trust will actively help them relocate to alternative clusters within its portfolio.
More than 469,200 sq ft of space has been set aside for tenants considering relocation. These alternative spaces will be offered at a discounted gross rental rate for new 3-year leases. Rent-free, longer fit-out periods and cash subsidies will also be offered to tenants who choose to relocate.

Mapletree Industrial Trust’s sheet robust. Assuming the redevelopment exercise is debt, its is likely to slightly 33.8%, as at end FY3/19, to 36%.
Mapletree Industrial Trust also has a small of 5.4% and 11.4% of debt in FY20 and FY21.

We leave our FY20-22F DPU estimates for maintain our DDM-based target price of S$2.32.
We continue to like Mapletree Industrial Trust for its visible growth profile from redevelopments and acquisitions.
Downside risks include slower recovery in industrial rents and larger tenant exits.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-10

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