Mapletree Industrial Trust

DBS Group Research, March 24

MAPLETREE Industrial Trust (MINT) announced that it has secured a contract to develop a new built-to-suit facility for Hewlett Packard (HP) for a total consideration of $250 million. Upon completion in FY2018, HP will sign a long-term lease of 10.5 years, with two five-year extension options, providing strong income visibility for MINT.

The proposed development is estimated to yield 9 per cent on total cost and is positive for MINT in many ways. Upon completion in FY2018, MINT will benefit from higher property specifications with the property repositioned as a hi-tech property, higher revenues through maximising unutilised plot ratio resulting in about 89 per cent increase in gross floor area, and stronger income visibility through a longer weighted average lease expiry backed by a strong tenant.

At 9 per cent net property income yield, this development project is expected to be yield enhancing to earnings upon completion. Gearing is estimated to hit about 41 per cent upon completion. Given the phased investment, we believe there is no urging need to raise new equity.

We believe that the positives from this deal will far outweigh the limited impact on earnings in the immediate term. Maintain "buy", with target price raised to $1.50.

BUY