Mapletree Industrial Trust - OCBC Investment 2020-06-24: Proposed Acquisition A Testament Of Quality

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MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Proposed Acquisition A Testament Of Quality

• Proposed data centre acquisitions from sponsor.
• Private placement to raise S$410m.
• Bump up Mapletree Industrial Trust's fair value to S$3.25.

Proposed acquisition of remaining 60% interest in 14 data centres in the US from sponsor

• Mapletree Industrial Trust (SGX:ME8U) announced its proposed acquisition of the remaining 60% interest in a portfolio of 14 data centres in the US from its sponsor Mapletree Investments Pte Ltd (MIPL).
• The 14 properties are currently held by a JV between Mapletree Industrial Trust and MIPL (40% and 60% respective interest) which was set up to acquire the properties in Dec 2017. The agreed portfolio property value of US$823.3m (~S$1,169.1m) on a 100% basis is 0.7% lower than one of the independent valuations but in-line with the other. It also translates into an NPI yield of 6.8%. This is only a tad lower than the initial NPI yield of 6.9% when the portfolio was first acquired in 2017.
• The total acquisition cost is estimated to be approximately US$218.0m (~S$309.6m), while the existing JV’s debt is US$450m (~S$639.0m).

Strong boost to portfolio mix and growth profile

• Upon completion of this proposed acquisition, Mapletree Industrial Trust’s AUM will increase from S$5.9b (as at 31 Mar 2020) to S$6.6b.
• Data centres in Singapore and North America will constitute ~39% of its portfolio by AUM (versus 31.6% previously) and will move Mapletree Industrial Trust further up the industrial value chain, which we view positively. The Hi-Tech Buildings segment will account for ~59.9% of Mapletree Industrial Trust’s AUM after this acquisition.
• According to industry watcher 451 Research, key drivers of data centre space demand include
  1. a surge in data and cloud computing and need for data storage,
  2. proliferation of consumer devices and
  3. acceleration of cloud adoption pace due to the Covid-19 pandemic.

Finalised private placement exercise to raise gross proceeds of S$410m

• To fund this acquisition, Mapletree Industrial Trust also announced a private placement of 146.4m new units (upsize option exercised) at an issue price of S$2.80 per unit to raise gross proceeds of S$410m. This comes in at the top end of its initial indicative price range of S$2.732-S$2.800. The offer price represents a tight discount of 1.4% to its last closing price of S$2.84.
• Mapletree Industrial Trust's pro forma FY20 aggregate leverage ratio is estimated to increase from 37.6% to 38.7%, but it is likely to come in lower now with the strong demand for its placement exercise. We incorporate this deal in our model, and also factor in additional rental concessions to tenants.
• See Mapletree Industrial Trust Share Price; Mapletree Industrial Trust Target Price; Mapletree Industrial Trust Analyst Reports; Mapletree Industrial Trust Dividend History; Mapletree Industrial Trust Announcements; Mapletree Industrial Trust Latest News.
• We lower our FY21F DPU forecast by 1.7% but increase our FY22F projection by 3.8%. We also lower our cost of equity assumption from 6.8% to 6.3% to take into account Mapletree Industrial Trust’s continued progression towards a more resilient portfolio constitution with stronger earnings visibility. Consequently, our fair value is bumped up from S$2.84 to S$3.25.



• See also recent SGX Market Update: S-REITs with Data Centres Amongst World’s Strongest in 2020 YTD.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-06-24

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