MI-REIT : UBS

Good Exposure To Singapore’s Stable Industrial REIT Segment

MacarthurCook Industrial REIT (MI-REIT) is the fourth industrial real estate investment trust (REIT) in Singapore, with a portfolio of 12 fully tenanted industrial properties in Singapore. The assets are valued at a total of S$316.2m, with a total net lettable area of 2.10m sf. More than 70% of MI-REIT’s total rental income comes from SGX-listed companies or their subsidiaries.

Attractive yield and steady income. The forecast DPU yields of 6.18% and 6.32% for FY08 and FY09 respectively are the highest among Singapore’s industrial REITs. In addition, all of MI-REIT’s leases are long-term leases ranging from three to 10 years, with an average lease duration of 6.7 years. There is no rental expiry for all of its 12 properties until 2010, when 12.1% of the rental income is due for renewal, providing a steady stream of income for the next three years at least. We see organic growth potential as the rental agreements come with escalation clauses with an average compounded annual rental income growth rate of 3.00% in FY08-12.

Acquisitions to drive DPU growth and enhance unit value. MI-REIT aims to acquire up to S$500m worth of industrial assets p.a. over the next three years and increase its overseas mix to 60%, with the initial focus on acquisitions in Hong Kong, China, Japan and Malaysia. We believe there are abundant acquisition opportunities in Singapore and overseas for MIREIT to meet its objectives. In addition, MI-REIT has the first right of refusal to purchase all the industrial properties in Asia sourced by its parent, MacarthurCook, for a period of five years from the launch date.

Key risks. We see key risks from the following: a) high concentration risk in UE Tech Park, b) uncertainty in quality of subtenants, and c) competition from peers for quality assets.