Mapletree Industrial Trust - OCBC Investment 2019-09-17: In MIT We Trust


Mapletree Industrial Trust - In MIT We Trust

  • JV with sponsor for data centre acquisitions.
  • Expanding its scale in North America.
  • Positive on deal.

Investment thesis

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) has a sizeable portfolio of industrial assets in Singapore which includes Hi-Tech Buildings, Flatted Factories and Business Parks. It also penetrated the U.S. and Canadian data centres market and thus offers investors a proxy to the fast-growing digitalisation and data outsourcing trends.

Investment summary

Proposed JV with sponsor for data centres acquisition in North America –

  • Mapletree Industrial Trust (MIT) announced that it has formed a 50:50 JV with its sponsor Mapletree Investments Pte Ltd for the acquisition of 10 powered shell data centres from Digital Realty for a purchase consideration of ~US$557.3m (~S$774.2m). At the same time, this JV has also formed an 80:20 JV with Digital Realty for the co-investment in three fully fitted hyperscale data centres (turnkey portfolio) for a purchase consideration of US$810.6m.
  • According to Digital Realty, the 10 powered shell data centres are expected to generate 2020 cash net operating income of ~US$37m, representing a 6.6% cap rate; while the turnkey portfolio is expected to generate 2020 cash net operating income of ~US$61m, which translates into a 6.0% cap rate.
  • From our understanding, the NPI yields for Mapletree Industrial Trust are slightly lower than that reported by Digital Realty, given some costs which Mapletree Industrial Trust has to incur.

Robust portfolio metrics which will enhance MIT’s scale up the value chain –

  • The 13 data centres are located across North America with a total transaction value of ~US$1,367.9m, of which Mapletree Industrial Trust’s share is ~US$683.9m. All properties are fully leased to nine established tenants, with a long WALE of 9.1 years (by gross rental income) and 92.2% of the leases have fixed annual rental escalations of 2% or more. 12 out of 13 of the properties are freehold.
  • Expected completion date for the turnkey portfolio acquisition is in late 2019 while the powered shell data centres are expected to be acquired in early 2020.
  • Post-acquisition, overseas and Singapore data centres will contribute 24.3% and 7.2% of Mapletree Industrial Trust’s portfolio AUM, respectively.

Approximate 60:40 debt and equity funding mix; deal is accretive –

  • Separately, Mapletree Industrial Trust has launched a private placement exercise to raise gross proceeds of at least S$350m. The indicative issue price is between S$2.211 and S$2.265, representing discounts of 2.8-5.1% to Mapletree Industrial Trust’s last closing price prior to the announcement. The bulk of the gross proceeds will be used for the aforementioned acquisitions, with the remaining acquisition cost to be funded by debt.
  • On a pro forma basis, Mapletree Industrial Trust’s FY19 DPU and NAV is expected to increase by 3.5% and 3.3%, respectively, while pro forma aggregate leverage will increase from 33.4% to 38.5%. After factoring in this proposed acquisition and raising our terminal growth rate assumption to 2% from 1.5%, we boast our fair value estimate from S$2.29 to S$2.55.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-09-17
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.55 UP 2.290