Mapletree Industrial Trust - DBS Research 2020-08-18: A Bittersweet Goodbye To A Prized Asset


Mapletree Industrial Trust - A Bittersweet Goodbye To A Prized Asset

  • Equinix exercised option to purchase built-to-suit data centre at 26A Ayer Crescent for S$125m.
  • Divestment likely to be one-off given unique buy-back option within lease contract; no other such options seen in Mapletree Industrial Trust’s portfolio.
  • While news is negative, Mapletree Industrial Trust is now a much larger vehicle and gains paid to unitholders will be welcome.

What’s New

Exercise of purchase option.

  • Equinix Singapore (“Equinix”) has exercised its option to purchase 26A Ayer Rajah Crescent at a proposed selling price of S$125m. The property at 26A Ayer Crescent is Mapletree Industrial Trust (SGX:ME8U)’s first built-to-suit data centre development project in Singapore post its listing. This option to purchase by the tenant (Equinix) was in the lease agreement signed on 1 March 2015 when Mapletree Industrial Trust announced the proposed development of this built-to-suit project. We understand this is the only buy-back option granted to a tenant within Mapletree Industrial Trust’s portfolio.
  • The sale price is equivalent to the valuation as of March 2020 and is at 1.23x (c.23.3% premium) of its original development cost of S$101.4m. The property is estimated to contribute 2.2% to Mapletree Industrial Trust’s revenue for FY20. The exit yield is c.6.8% on our calculations. The deal is subject to JTC approval and expected to close by the end of 2020.

Our thoughts.

A tough goodbye to a prized asset.

  • While Mapletree Industrial Trust will book in hefty gains on this divestment, it will be seen by many as a bittersweet separation. This is especially when a data centre in Singapore is a prized asset class given the difficulty in gaining access into the sector on both regulatory and availability fronts. In addition, investors are likely to be disappointed initially at the divestment price at valuation vs Mapletree Industrial Trust’s trading multiple of 1.96x P/NAV.
  • That said, we take heed that there are no other buy-back options granted to tenants in its portfolio. This deal was struck early in its listing history, at a time when Mapletree Industrial Trust was building up its development track record and securing this this development deal led to two data centre development opportunities in Singapore.

Gains may be distributed to unitholders.

  • While proceeds may be utilised to repay debt or fund its development projects, we understand that gains will likely to be shared with investors, which is a welcome strategy. We estimate net gains to be c.S$19.0m (after provision for potential tax and associated costs) translating to a positive DPU uplift of 0.8Scts which we understand may be paid over two to three years. This translates to a c.1.5%-2.5% uplift in DPU over the period.

Staying positive on its outlook.

Derek TAN DBS Group Research | Dale LAI DBS Research | 2020-08-18
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