Mapletree Industrial Trust - Maybank Kim Eng 2019-09-17: Upping Stability And Growth


Mapletree Industrial Trust - Upping Stability And Growth

Deal strengthens AUM profile

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) has gained hi-tech growth momentum with its second overseas deal. Its USD1.4b (SGD1.9b) investment in 13 data centre assets in North America, via a 50-50 JV with its sponsor, lifts freehold properties from 24.0% to 37.9% of its AUM, and increases DPU visibility. We estimate DPUs could rise 3.0% in FY21, as its hi-tech AUM contribution grows from 43.5% to 52.9%.
  • Maintain BUY and we raise our DDM-based Target Price to SGD2.50.
  • We favour Mapletree Industrial Trust for its growth fundamentals, as DPUs are supported by recovering leasing demand in Singapore and a more resilient portfolio given its hi-tech asset investments and overseas diversification.

A 2nd US data centre acquisition with sponsor

  • Mapletree Industrial Trust, together with Mapletree Investments will acquire from Digital Realty (DLR US, Not-rated), ten powered-shell data centres in the US and Canada for USD557.3m (SGD774.2m), and also co-invest in three existing fully-fitted hyper-scale data centres with the vendor at USD810.6m (SGD1126.1m).
  • Mapletree Industrial Trust’s contribution to the total deal value is USD694.5m (SGD965.0m) and expected completion dates for the two transactions are in early 2020 and late 2019 respectively.

Underpinned by strong growth fundamentals

  • We see strong demand growth for data centre assets globally as net operational needs (in m sf) are expected to increase at 4.9% CAGR from 2017-23E, according to industry consultant 451 Research.
  • The assets are well-placed, with 70.0% of gross rental income contributed by six properties in North Virginia, the largest data centre market globally. 12 of the 13 properties are freehold and backed by favourable underlying fundamentals – 100% occupancy, long 9.1-year WALE, with 92.2% of leases expecting at or above 2% pa rental escalations.
  • Post-deal, contribution from the hi-tech segment rises from 43.5% to 52.9% of its total AUM.

Deal is accretive, lifts FY21 DPU by 3.0%

  • The deal will be funded through debt and equity; a private placement exercise was initiated on 17 Sep 2019 to raise no less than SGD350.0m. Management expects Mapletree Industrial Trust's NAV to rise by 3.3%, as leverage increases from 33.4% as of end-Jun 2019 to 38.5%, with SGD650m in additional debt headroom (at 45% limit) for further deals – possibly in Europe.
  • We raised forecasts from the deal, while including an estimated 155m in new units.

Chua Su Tye Maybank Kim Eng Research | 2019-09-17
SGX Stock Analyst Report BUY MAINTAIN BUY 2.500 UP 2.400