MIT – CIMB

Biggest BTS project to date

MINT has just announced its largest BTS project to date. With an estimated NPI yield of 9%, we believe that this project will greatly improve its long-term outlook. We lower our FY15-16 DPS by 2-3% as a result of higher interest payment and slight dip in earnings but maintain our Add rating, with a higher DDM-based (discount rate: 8.1%) Tp of S$1.64, after incorporating the benefits brought about from this project.

What Happened

MINT announced that it will be developing its largest build-to-suit (BTS) project to date, a S$250m project at its existing Telok Blangah Cluster for Hewlett-Packard (HP) Singapore. The property currently comprises two 7-storey flatted factories and a canteen, with GFA of 437,300 sf and a land lease of 60 years (from Jul 08). The project is expected to be developed in two phases, yielding a total GFA of 824,500 sf. HP has committed to leasing the BTS facility fully, with a c.2% annual rental escalation for 10.5 years (six months of rent-free period) and an option to renew for two 5-year terms. MINT will offer preferential packages and incentives to its current tenants to encourage them to move into its other properties.

What We Think

We view the proposed BTS project positively as MINT’s GFA will be raised by more than 89%, assuming a maximum allowable plot ratio of 2.5x. This property accounted for 1.9% of MINT’s 9MFY14 gross revenue. Upon completion, it is expected to account for 9%, representing a considerable boost. Including land cost, incentive packages and building costs, we expect this project to provide an attractive NPI yield of more than 9%. On the other hand, loss of income is expected to be marginal (estimated at 0.6% of gross revenue) as MINT has offered attractive packages and incentives to encourage its current tenants to move into its other properties. With Phases 1-2 of the project scheduled for completion in 2H16 and 1H17 respectively, partial income contributions are expected in FY17, with full contributions in FY18. Upon completion, MINT’s gearing is expected to rise by 4.7% to 42%, assuming the project is fully funded by progressively-paid debt.

What You Should Do

Although near term DPU is expected to dip slightly as a result of loss in income and higher interest payment, this is outweigh by the positivity brought about by the project. Maintain Add rating with a higher target price of S$1.64.