New addition to project pipeline makes Mapletree Industrial Trust all the more a better ‘buy’

SINGAPORE (March 29): OCBC Investment Research is maintaining its “buy” recommendation on Mapletree Industrial Trust (MIT) at a fair value of S$1.88 after the REIT’s recent announcement of its S$60 million (RM190 million) contract win for the development of a build-to-suit (BTS) data centre.

In a report on Wednesday, lead analyst Andy Wong says he remains positive on the deal even as he estimates NPI yield on cost for the project to be at 6.5%, which slightly lower than MIT’s BTS project for Equinix in 2015 at around 7%.

This is because according to the agreement, the data centre will be fully leased to MIT’s 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 option – which Wong believes would enhance income stability and visibility to the trust’s unitholders.

He also thinks of the latest contract win as a “strong affirmation of MIT’s capabilities”. According to Wong, the project’s successful completion would further reinforce MIT’s track record and reputation within the data centre industry.

“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 end-FY19,” he adds.

OCBC has therefore raised its terminal growth rate assumption from 0.5% to 1% in its dividend discount model after factoring in what Wong describes as the management’s “continued strategic drive to scale up the value chain” by increasing its focus on growing its hi-tech buildings segment, as well as providing customised industrial real estate solutions to its clients.

“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%),” notes the analyst.

As at 11.20am, units of MIT are trading 0.3% lower at S$1.76. — theedgemarkets.com.sg

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