October 10, 2019

Mapletree Industrial Trust (MINT) and sponsor Mapletree Investments have formed a 50:50 joint venture to acquire 10 powered base building data centres for US$557.3m and three Turnkey hyper-scale data centres for US$810.6m. The total transaction value is US$1,367.9m (S$1,900.3m), which is a 3.4% discount to independent valuation.

All properties are 100% leased to nine established tenants with a long weighted average lease expiry of 9.1 years. Three of top-10 US technology companies contribute 51.7% of gross rental income. 92.2% of leases have fixed annual rental escalations of 2% or more. 91.5% of gross rental income is derived from triple net leases whereby all outgoings are borne by tenants. 94.1% of land area is freehold.

The acquisition increases MINT’s exposure to high-tech buildings from 43.5% to 52.9% of AUM. The exposure to data centres expands from 17.7% to 31.5% of AUM (Singapore: 7.2%, US & Canada: 24.3%). The exposure to overseas data centres expands from 9.1% to 24.3% of AUM. MINT targets to have 30% of AUM allocated to overseas data centres over the longer term.

The portfolio of data centres provides an initial NPI yield of 6.1%. The transaction is expected to increase pro forma DPU and NAV by 3.5% and 3.3% in FY19 respectively. The calculation assumes issue of 157.3m new units at S$2.25 each to raise S$353.9m.

MINT intends to acquire more data centres in gateway cities in the US, Europe and Asia. It is likely to partner Mapletree Investments to pursue larger-scale portfolio transactions. We see value in MINT as an entry into high-growth data centres at a reasonable price. Maintain BUY with Target Price: S$2.69. – UOB Kay Hian

Closing Price: S$2.50