MIT – DBSV

Looking for synergies and benefits

• Creating synergies from latest acquisition from JTC

• “Strategic Premium” paid for exclusive assets

• BUY maintained, DCF-based TP S$1.21

Creating synergies from latest acquisition from JTC. Mapletree Industrial Trust (“MINT”) has been awarded tranche 2 of the latest JTC tender exercise of 11 properties (8 flatted factories and 3 amenity centers) of over 2.1m sqft, increasing its total portfolio size by 18% to S$2.6bn. A key advantage is the ability for MINT to create operational efficiencies given its leadership & experience in managing the flatted factory space. MINT is expected to extract the embedded earnings growth from this target portfolio through (i) improving current occupancy level, which is at c95%; (ii) higher rents as the current passing rent is more than 30% below JTC’s latest posted rents as at 1st July’11; and (iii) asset enhancement works on certain assets to improve efficiency and/or GFA. This implies further earnings upside in the coming years when these expiring leases are renewed.

“Strategic Premium” paid for exclusive assets. While we like the attributes of this target portfolio, we believe that the purchase consideration of S$400.3m, translating to an initial yield of 5.0%, appears to have factored in a fair amount of forward growth in our view. We have raised our earnings to account for the contribution from this portfolio, assuming rental reversions of 15% in FY12-13 and 5% thereafter for the new portfolio, funded by a 40-60% debt-equity scenario, keeping gearing at 36.5%.

Longer term benefits, BUY, TP maintained at S$1.21. We believe that synergies from an enlarged portfolio will flow through in the longer term. In addition, we have not factored in any potential enhancement works that would be yield accretive.