MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)
Mapletree Industrial Trust - High Growth From Data Centres At A Reasonable Price
- MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) persists in its rapid repositioning towards high-tech buildings and data centres. The acquisition of 13 data centres in North America (3 turnkey hyper-scale data centres and 10 powered shell data centres) through a 50:50 JV with its sponsor adds nine established tenants with a long WALE of 9.1 years. Three of the tenants are in the top-10 list of US technology companies.
- We see value in Mapletree Industrial Trust as an entry into high-growth data centres at a reasonable price.
- Maintain BUY. Target price: S$2.69.
WHAT’S NEW
High-tech transformation powered by data centres.
- MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) and sponsor Mapletree Investments have formed a 50:50 joint venture to acquire 10 powered base building data centres for US$557.3m (JV holds 100% stake) and three Turnkey hyper-scale data centres for US$810.6m (JV holds 80% stake, vendor Digital Realty holds 20% stake). The total transaction value is US$1,367.9m (S$1,900.3m), which is a 3.4% discount to independent valuation. Digital Realty is the second-largest DC REIT traded in the US.
- Mapletree Investments has granted Mapletree Industrial Trust the right of first refusal (ROFR) to acquire its 50% stake in the JV.
Quality tenants with long WALE.
- All properties are 100% leased to nine established tenants with a long weighted average lease expiry (WALE) of 9.1 years (by gross rental income). Three of top-10 US technology companies contribute 51.7% of gross rental income. 92.2% of leases have fixed annual rental escalations of 2% or more. 91.5% of gross rental income is derived from triple net leases whereby all outgoings are borne by tenants. 94.1% of land area is freehold.
Continued shift in asset mix towards high-tech buildings and data centres.
- The acquisition increases Mapletree Industrial Trust’s exposure to high-tech buildings from 43.5% to 52.9% of AUM. The exposure to data centres expands from 17.7% to 31.5% of AUM (Singapore: 7.2%, US & Canada: 24.3%). The exposure to overseas data centres expands from 9.1% to 24.3% of AUM.
- Mapletree Industrial Trust targets to have 30% of AUM allocated to overseas data centres over the longer term.
Acquisition is DPU-accretive.
- The portfolio of data centres provides an initial NPI yield of 6.1% (powered base building data centres: 6.6%, turnkey hyper-scale data centres: 6.0%). The transaction is expected to increase pro forma DPU and NAV by 3.5% and 3.3% in FY19 respectively. The calculation assumes issue of 157.3m new units at S$2.25 each to raise S$353.9m.
Continuing fruitful partnership with sponsor.
- Mapletree Industrial Trust intends to acquire more data centres in gateway cities in the US, Europe and Asia. It is likely to partner Mapletree Investments to pursue larger-scale portfolio transactions. For single-asset transactions, Mapletree Industrial Trust could acquire the data centres by itself.
STOCK IMPACT
High-tech transformation powered by data centres.
- The repositioning towards high-tech buildings and expanded exposure to data centres will help Mapletree Industrial Trust weather macro uncertainties and escalation in trade conflicts.
Private placement completed
- Mapletree Industrial Trust has completed a private placement to issue 176.6m new units at S$2.265 each to raise S$400m to finance the acquisition.
High growth from data centres at a reasonable price.
- Mapletree Industrial Trust’s 2020F distribution yield of 5.0% is higher than the 4.1% for KEPPEL DC REIT (SGX:AJBU). See Keppel DC REIT dividend history.
EARNINGS REVISION/RISK
- We forecast DPU of 12.6 S cents for FY21, 12.4 S cents for FY22 and 12.8 S cents for FY22.
- See Mapletree Industrial Trust's dividend history.
VALUATION/RECOMMENDATION
- Maintain BUY and raise target price to S$2.69, based on DDM (required rate of return: 6.5%, terminal growth: 2.0%).
SHARE PRICE CATALYST
- Growth from data centres in Singapore and the US.
- Acquisition of the remaining 60% stake in the portfolio of 14 data centres (first JV) and 50% stake in the portfolio of 13 data centres (second JV) from Mapletree Investments.
Jonathan KOH CFA
UOB Kay Hian Research
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Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2019-10-10
SGX Stock
Analyst Report
2.69
UP
2.580
