Adding Onto Hi-tech, BUY

• Mapletree Industrial Trust (SGX:ME8U) has reinforced its hi-tech growth trajectory with its acquisition of the remaining 60% interest in its first US data centre asset portfolio. The investment at 6.8% NPI yield, lifts its overseas contribution from 24.4% to 32.5% and boosts its high-tech buildings exposure from 55.0% to 59.9%.
• We have kept forecasts and SGD2.95 DDM-based (COE: 6.5%, LTG: 2.0%) unchanged for now pending deal-closure.
• Mapletree Industrial Trust's valuations will continue to be supported by its positive growth fundamentals and more resilient portfolio, as DPU visibility has been further strengthened by its rising hi-tech asset investments and overseas diversification. These and SGD1.6- 2.3b in debt headroom, could support other DPU-accretive deals. BUY.

Acquisition From Sponsor at 6.8% NPI Yield

• Mapletree Industrial Trust will acquire the remaining 60% interest in the 14 US data centres held by its sponsor for USD210.9m (~SGD299.5m), at a 0.7% discount to end- Mar 2020 valuations.
• The properties are freehold, primarily powered-shell and on triple-net leases. They are 97.4% leased to established ICT sector names; AT&T will rank as its second largest tenant at 6.5% of gross rental income, and backed by a WALE of 4.6 years with 97.8% of leases expecting 2% or above pa rental escalations.
• Post-deal, its freehold properties are expected to jump from 37.9% to 51.8% of AUM (by NLA).

Underpinned by Strong Growth Fundamentals

• The assets are well-placed and should strengthen Mapletree Industrial Trust’s footprint in the US’s top 15 data centre markets. We continue to expect strong demand growth for data centre assets globally with rising operational needs.
• According to 451 Research, outsourced needs (in m sf) could increase at a 9.5% CAGR from 2018-24E with a 14.0% CAGR rise in cloud computing revenues. COVID-19 has likely accelerated the pace of cloud adoption from the increased usage of remote working, video streaming and online gaming, with higher data traffic needs bolstering leasing demand.

Deal Is DPU and NAV Accretive

• The deal will be funded by a private placement exercise initiated on 23 Jun 2020 to raise no less than SGD350.0m (or up to 146.4m new units at SGD2.73-2.80 per unit).
• Management expects Mapletree Industrial Trust's pro-forma DPU and NAV to rise by 3.4% and 3.7% respectively, as leverage increases from 37.6% as of end-Mar 2020 to 38.7%.
• We will revise estimates following the deal closure, which is expected by end-Sep 2020.

Source: Maybank Kim Eng Research - 23 Jun 2020