Mapletree Industrial Trust - CGS-CIMB Research 2019-09-17: MINT-ing More Data Centre Acquisitions


Mapletree Industrial Trust - MINT-ing More Data Centre Acquisitions

Upgrade to ADD with a higher Target Price of S$2.44

  • We raise our DDM-based Target Price to S$2.44 after accounting for the acquisition which provides a 1.4-2.6% boost to FY20-22F DPUs.
  • We like Mapletree Industrial Trust for its visible growth profile and think that the continued shift towards future-ready assets with 100% occupancy and low WALE help to lower downside earnings risk. The acquisition also allows Mapletree Industrial Trust access to DLR’s industry expertise and an additional ROFR on the 50% interest from its sponsor. Potential downside risks include slower recovery in industrial rents and large tenant exits.

2nd data centre acquisition to be DPU- and NAV-accretive

  • Mapletree Industrial Trust announced a JV with its sponsor to acquire two data centre (DC) portfolios (Turnkey Portfolio and Powered Shell Portfolio) for US$1.37bn from Digital Realty (DLR US, Not Rated); Mapletree Industrial Trust’s share of the total acquisition cost will be US$694.5m. According to DLR, the deal was done at 6.0% and 6.6% cap rates for the Turnkey and Powered Shell portfolios respectively. See Mapletree Industrial Trust's announcements.
  • Based on the pro-forma FY18/19 financials by Mapletree Industrial Trust, the acquisition will result in a 3.5% accretion to DPU and 3.3% accretion to NAV. Mapletree Industrial Trust expects the turnkey portfolio to be completed in late 2019 and the powered shell portfolio acquisition to be completed in early 2020.

Higher occupancy and longer WALE strengthens MINT

  • The Turnkey Portfolio comprises three hyperscale DCs in Northern Virginia at a purchase consideration of US$810.6m while the powered shell portfolio is made up of 10 DCs across North America for US$557.3m. All the assets are fully occupied and have a long weighted average lease expiry (WALE) of 9.1 years with no significant expiries within the next five years. 92% of the leases also have fixed rental escalations of ≥2% p.a.
  • The acquisition further diversifies Mapletree Industrial Trust’s tenant base by bringing tenants that include three of the top 10 largest US technology companies and reduces exposure to any single tenant from 9.2% to 8.0% of gross rental income.

Funded by a mix of private placement to raise ≥S$350m and debt

  • The acquisitions will be funded by a combination of debt and equity. The private placement of 158.3m new units has been launched to raise gross proceeds of ≥ S$350m with an upsize option to issue 22.6m new units to raise additional proceeds of ≥ S$50m. The issue price range of S$2.211-2.265 per new unit represents a 2.7-5.0% discount to VWAP of S$2.3278. This structure implies a 64:36 debt to equity ratio assuming the upsize option is not exercised.
  • Post-acquisition, Mapletree Industrial Trust expects its pro-forma aggregate leverage to increase to 38.5% from 33.4% as at Jun-19.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | 2019-09-17
SGX Stock Analyst Report ADD UPGRADE HOLD 2.44 UP 2.370