Industrial REITs – DBSV

Another prized portfolio

• Rare opportunity for industrial S-REITs to acquire a sizeable portfolio of industrial assets in Singapore

• Qualities aplenty; earnings accretion is significantly higher for MINT vs A-REIT

• BUY MINT (TP S$1.21), Maintain HOLD for A-REIT (TP S$2.14) on valuations

Rare opportunity to acquire a sizeable Singapore-based portfolio of industrial properties. Recent media reports highlighted that Mapletree Industrial Trust (“MINT”) and Ascendas REIT (“A-REIT”) have been short-listed in the final bidding for JTC’s tender exercise of 21 flatted factories and amenity centers. This is a rare opportunity for both REITs to acquire such a sizeable portfolio of 3.5m sq ft NLA of well located assets in Singapore. In terms of NLA, the target assets will account for c13% and c 21% of AREIT’s and MINT’s current portfolios respectively.

Location is a strong selling point. Within the industrial hubs in Eastern Singapore, the properties are located close to established housing estates and typically enjoy strong demand for space from tenants. We understand that current average occupancy is high at c96%. We expect the portfolio’s operational performance to remain robust with growth from expected positive rental reversions in current industrial up-cycles on top of improving occupancies. In addition, there are also opportunities for re-development that will be earnings accretive, subject to regulatory approval.

Earnings accretion expected. At current gearing of c33% and 36% respectively, we believe both MINT and A-REIT have the financial capacity to acquire. In our scenario analysis, we assume A-REIT and MINT each be awarded a tranche of properties at S$300m @ 7% NPI yield. We estimate DPU accretion of c4% for A-REIT and c15% for MINT, assuming debt cost of 3.0%. In addition, an assumed equity fund raising exercise for MINT would unveil estimated DPU accretion from +6% to +14% (TP +1% to +10%) assuming between 20-70% of funding through new equity raising.

BUY MINT, TP S$1.21 offers total return of 11%, HOLD AREIT on valuations. We are positive on A-REIT and/or MINT as possible winners in this tender exercise, which will provide re-rating catalysts for stock prices. While the portfolio offers income diversification to A-REIT, it has greater strategic fit with MINT, which already manages a portfolio of similar-type flatted factories. In addition, a “win” would have a greater impact on MINT’s earnings an