MAPLETREE INDUSTRIAL TRUST
ME8U.SI
Mapletree Industrial Trust - Establishing Data Centre Foothold In USA
- Headline gross revenue includes S$3.1 mn pre-termination compensation from J&J.
- Underlying recurring gross revenue was in with expectation.
- DPU boost due to above effect. Underlying recurring DPU of 2.83 cents was in line.
- 60:40 JV between MIPL and MINT to acquire 14 data centres in the USA at ~7% NPI yield. Advanced distribution of 0.97 – 1.01 cents, due to ongoing Private Placement to partially fund the acquisitions.
- Previous target price achieved and catalyst priced-in; downgrade to Neutral.
The Positives
60:40 JV between Mapletree Investments Pte Ltd (MIPL) and Mapletree Industrial Trust (MINT):
- The JV will acquire a US$750 mn (S$1.02 bn) portfolio of 14 data centres in the USA at a 3.4% discount to valuation. The manager estimates the proposed acquisition will be 0.26 cents DPU accretive on a pro forma basis.
- Our FY19e DPU estimate is 0.09 cents higher than previous.
Organic growth driven by Hewlett-Packard (HP) build-to-suit (BTS) at Depot Close:
- Both Phase One and Phase Two are now income producing. The QoQ lower occupancy for Hi-Tech Buildings is a mathematical effect of the lag between obtaining TOP and occupation.
Portfolio weighted average rental reversion of +2.8%:
- Driven by renewal of a data centre tenant in the Hi-Tech Buildings segment and the Flatted Factories segment. However, negative reversions of up to -1.8% was seen in the rest of the portfolio.
The Negatives
Drag from Johnson & Johnson (J&J) pre-termination:
- While the S$3.1 mn pretermination compensation will be paid out in full and provide a boost to 2Q FY18 DPU, the vacated space (28% of NLA at The Strategy) has only been 15% back-filled.
Marginally lower QoQ occupancy from 92.6% to 90.4%:
- Mainly due to lower occupancies in all segments except Light Industrial Buildings segment, which secured some smaller new tenants.
Outlook
The outlook is stable.
- The USA expansion into data centres provides access to a burgeoning asset class that offsets the limited prospects in Singapore industrial space. The trade-offs however are: higher cost of onshore USD debt compared to SGD debt; and US withholding tax that is 10%-15% of NPI.
Downgrade to Neutral; slightly higher target price of $1.99 (previously $1.98)
- We incorporate the effects of the JV with MIPL into our model. With the acquisition of the target portfolio, our target price moves up only slightly due to the effects of higher interest expense from additional S$30.7 mn debt at the Trust level, and 3.8% larger unit base from the Private Placement.
- Our target price represents an implied 1.37x FY18e P/NAV multiple.
Richard Leow cFTE
Phillip Securities
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http://www.poems.com.sg/
2017-10-27
Phillip Securities
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1.99
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1.980
