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Mapletree Industrial Trust kept at 'buy' despite bittersweet separation with prime data centre asset

Samantha Chiew
Samantha Chiew  • 3 min read
Mapletree Industrial Trust kept at 'buy' despite bittersweet separation with prime data centre asset
As Mapletree Industrial Trust says goodbye to one of its assets, it is still on track towards a positive growth
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DBS Group Research is keeping its “buy” recommendation on Mapletree Industrial Trust with a target price of $3.25.

Equinix Singapore has exercised its option to purchase 26A Ayer Rajah Crescent at a proposed selling price of $125 million. The property is MINT’s first built-to-suit data centre development project in Singapore post its listing.

This option to purchase by the tenant was part of the lease agreement signed on March 1, 2015, when MINT announced the proposed development of this built-to-suit project.

Analysts Derek Tan and Dale Lai understand that this is the only buy-back option granted to a tenant within MINT’s portfolio.

The sale price is equivalent to the valuation as of March 2020 and is at 1.23 times or about 23.3% premium, of its original development cost of $101.4 million.

Tan and Lai estimates that the sale of this property will contribute 2.2% to MINT’s FY20 revenue, with the exit yield being around 6.8%.

The deal is subject to JTC approval and expected to close by the end of 2020.

In an August 18 report, the analysts say, “While MINT 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.”

Furthermore, investors may be disappointed initially at the divestment price at valuation, compared to MINT’s trading multiple of 1.96 times price-to-net-asset-value. But the gains from this deal are likely to be shared and distributed to investors.

MINT is expected to clock in a net gain of about $19.0 million, which translates to a positive DPU uplift of 0.8 cents, which could be paid over two to three years.

Nonetheless, the analysts seem to brush this off as a one-off deal. “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 MINT was building up its development track record and securing this this development deal led to two data centre development opportunities in Singapore,” they say.

“We see any near-term share price weakness (if any) to be temporary as MINT is now a much larger and diversified vehicle and has charted a path to be a major data centre player in the region. We maintain our positive view on MINT and see that it is on track to pivot its exposure towards high value-added industrial assets (hi-tech industrial and data centres) to support the manufacturing sector of the future economy,” adds Tan and Lai.

As at 12.10pm, units in MINT are trading at $3.15.

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