Mapletree Industrial Trust - UOB Kay Hian 2019-10-24: 2QFY20 Consistent Growth From Acquisition, Enhancement & Development

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) | SGinvestors.io MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - 2QFY20 Consistent Growth From Acquisition, Enhancement & Development

  • MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) reported DPU of 3.13 S cents for 2QFY20, up 4.0% y-o-y, driven by new revenue contributions from 18 Tai Seng Street (acquisition), 30A Kallang Place (enhancement) and Mapletree Sunview 1 (built-to-suit data centre). The acquisition of 13 data centres in the US and Canada increases Mapletree Industrial Trust’s exposure to high-tech buildings from 43.5% to 52.9% of AUM and adds three top-10 US technology companies as tenants.
  • We see value in Mapletree Industrial Trust as entry into high-growth from data centres at a reasonable price.
  • Maintain BUY. Target price: S$2.90.



2QFY20 RESULTS


Growth from new buildings.

  • Gross revenue and net property income grew 10.5% and 13.3% y-o-y respectively, driven by new revenue contributions from 18 Tai Seng Street (acquisition), 30A Kallang Place (enhancement) and Mapletree Sunview 1 (built-to-suit data centre). Its 40% stake in 14 data centres in the US contributed earnings of S$4.5m.

Focused on maintaining occupancy.

  • Mapletree Industrial Trust's average portfolio occupancy for 2QFY20 was 90.5%, edging slightly lower by 0.3ppt q-o-q. The Singapore portfolio occupancy was 90.2% (down 0.3ppt q-o-q). Average occupancy for business park buildings has improved 2.6ppt q-o-q to 81.9%.
  • Mapletree Industrial Trust has secured a new tenant for 10% of NLA at The Strategy, which will improve committed occupancy for business park buildings to 85%. Its US portfolio occupancy remained unchanged at 97.4%. The weighted average lease expiry increased q-o-q from 3.4 years to 3.6 years.

Completed upgrading of 7 Tai Seng Drive.

  • Mapletree Industrial Trust has completed the upgrading of 7 Tai Seng Drive as a data centre on 3 Jul 19. The seven-storey data centre with GFA of 256,600sf has been fully leased to Equinix Singapore for 25 years from 20 Jul 19.

Strong balance sheet.

  • Aggregate leverage ratio receded 4.2ppt q-o-q to 29.2% after utilising part of proceeds from an equity fund raising to repay debts. Weighted average cost of debt improved 0.1ppt q-o-q to 2.9%. Interest coverage remained healthy at 6.6x.


STOCK IMPACT


High-tech transformation powered by data centres.

  • Mapletree Industrial Trust and sponsor Mapletree Investments have formed a 50:50 JV 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), of which Mapletree Industrial Trust’s share is US$683.9m (S$950.2m).

Continued shift in asset mix towards high-tech buildings and data centres.

  • 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. 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%).

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.
  • 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.

Growth from data centres at a reasonable price.



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 FY23.


VALUATION/RECOMMENDATION



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% stakes in portfolio of 13 data centres (second JV) from Mapletree Investments.





Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-10-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.90 UP 2.690



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