Why a data centre at 7 Tai Seng Drive makes 'perfect sense' for Mapletree Industrial: DBS

Why a data centre at 7 Tai Seng Drive makes 'perfect sense' for Mapletree Industrial: DBS

Michelle Zhu
30/04/18, 12:30 pm

SINGAPORE (Apr 30): DBS Vickers Securities is maintaining its “buy” call on Mapletree Industrial Trust (MIT) with a target price of $2.22, which has yet to price in the REIT’s potential acquisition of a warehouse at 7 Tai Seng Drive for $68 million from Mapletree Logistics Trust (MLT).

In a Monday report, DBS lead analyst Derek Tan highlights that the property was valued at $69 million by independent valuers Cushman & Wakefield and Savills, which was notably higher than the valuation of $36.1 million on MLT’s books.

In his view, the variance in valuation was largely due to a “change in use” for the property given MIT’s plan to convert it from a warehouse building into a high-specification industrial building – which points to the likely repositioning of the warehouse into a data centre.

“Pursuant to the agreement [with its sponsor and MLT], MIT will undertake c.$95 million worth of upgrading works to increase the power capacity and floor loading capacity, and to provide additional telecommunication infrastructure as well as space for mechanical and electrical equipment. Judging by the high-specification upgrades, we believe that MIT will likely be repositioning the warehouse into a data centre, in our view,” says Tan.

According to him, such a development opportunity “makes perfect sense” for the REIT to undertake as it would build a future pipeline from the value-accretive deal.

He adds that securing a tenant on a long-term contract would also translate to a “secured and certain” income stream upon development completion.

Although potential yields for the Tai Seng asset have not be disclosed, the analyst estimates MIT to achieve yields of 6.5-7% post the acquisition, which is similar to its historical average.

“While it will only be accretive to MIT’s distributable income from the second half of 2019 (FY20F), we are positive on the strategic addition of 7 Tai Seng Drive as it improves portfolio earnings visibility and quality,” says Tan.

“We have not priced in this acquisition, subject to JTC approval. MIT, with ample debt capacity to debt fund this development, is expected to see its gearing rise slightly to c.33%, still at a comfortable level,” he adds.

As at 12.27pm, units in MIT are trading 1 cent lower at $2.01 or 17.1 times FY19F book.

Winners and losers from Singapore's budget as election looms

SINGAPORE (Feb 19): Singapore Finance Minister Heng Swee Keat boosted health-care and military spending, gave tax rebates to citizens and tightened rules on foreign workers ahead of an election that could come as early as this year. Heng announced a new $8 billion support package for seniors in his budget speech on Monday, as well as measures to help local businesses adopt new technologies. The expansionary fiscal plan will push the overall budget deficit to 0.7% of gross domestic product in the year ending March 2020, from a revised surplus of 0.4% this year. The finance minister opened....

Sasseur REIT FY18 DPU exceeds IPO forecast by 12.6%

SINGAPORE (Feb 18): The manager of Sasseur REIT announced a 4Q18 DPU of 1.999 cents, 28.1% higher than forecast. This also brings 2H18 DPU to 3.541 cents and FY18 DPU to a total of 5.128 cents. Sasseur REIT offers investors the unique opportunity to invest in the fast-growing retail outlet mall sector in China through its initial portfolio of four quality retail outlet mall assets. 4Q18 distributable income came in at $23.6 million, 28.1% higher than forecast while EMA rental income came in 1.6% higher than forecast at $31.2 million. Based on the Feb 18 closing unit price of $0.71,....

DBS chief sounds cautious note, but expects modest growth this year

SINGAPORE (Feb 18): Looking to the future, DBS CEO Piyush Gupta sounded a cautious note. For one, mortgage bookings have fallen by 30% to 40% since additional cooling measures were announced in July last year, he said. However, loan growth should continue and is likely to come from the corporate sector. See also: DBS reports 8% rise in 4Q earnings to $1.32 bil; brings FY18 earnings to new record high “We guided for mid-single digit loan growth and we are keeping to this loan growth estimate. I anticipate we will still see choppy markets and macro-economic slowdown,” Gupta says. Among....