MIT – CIMB

Low-risk yields

• Initiate with Outperform and target price of S$1.24. Sponsored by Mapletree Investments, MIT is a REIT that invests in income-producing industrial assets in Singapore. With an 11.2% market share of Singapore’s flatted factory space, MIT’s S$2.1bn portfolio is a good proxy for Singapore’s SME space, we believe. We anticipate a 3-year DPU CAGR of 5.3% for the next two years as existing rental caps on its non-business park space are lifted by June. Using DDM valuation (discount rate 8.4%), we arrive at a target price of S$1.24. Trading at 1.24x P/BV and a 2010 yield of 6.6%, MIT is not cheaper than industrial leader AREIT (1.25x P/BV; 7% yield). However with a under-rented portfolio, pure Singapore exposure, and large tenant base point, rental downside is limited whilst upside is conversely strong. We expect catalysts from announcements of accretive acquisitions or development projects.

• Demand to outpace supply. A healthy Singapore economy and manufacturing growth backed by the global electronics and semiconductor recovery are likely to boost take-up for flatted factories as firms expand to increase demand. Net new demand for flatted factories could surpass net new supply at least till 2013. The resultant rise in occupancy should lend support to rents and capital values.

• JTC’s trade sale could represent acquisition opportunity. JTC’s Phase 2 divestment of assets is likely to be finalised in 1H11. Its 3.5m sf portfolio will have no rental cap imposed, representing good opportunities for upward rental reversions at the onset, in our opinion. This represents a good acquisition opportunity for MIT to acquire a portfolio of similar asset quality and positioning as its existing one.