MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)
Mapletree Industrial Trust - Deepening Data Centre Exposure
- Mapletree Industrial Trust to acquire remaining 60% of 14 data centres in the US.
- Purchase to be funded via a private placement exercise, deal is expected to be DPU and NAV accretive, in our view.
- Downgrade to HOLD with a higher DDM-based Target Price of S$2.81.
Buys remaining 60% in 14 US data centres
- Mapletree Industrial Trust (SGX:ME8U) announced that it has entered into an agreement to acquire the remaining 60% in 14 US data centres (DC) from its sponsor at a total purchase consideration of US$218m (S$309.6m). This is based on an agreed property value of US$494m (S$701.5m), on a 60% basis, unchanged from its Mar 2020 valuation. See Mapletree Industrial Trust Announcements.
- Post-acquisition, Mapletree Industrial Trust will hold 100% in these properties. The transaction is subject to unitholders’ approval in an EGM and if approved, management expects the deal to be completed by end-3QCY20F.
The deal will increase its exposure to the data centre segment
- The purchase will further increase Mapletree Industrial Trust’s exposure to the more resilient DC segment, from 31.6% of assets under management (AUM) currently to 39%, thus enabling Mapletree Industrial Trust to future-proof its portfolio for a more digital economy, in our view. It also expands Mapletree Industrial Trust’s footprint in the US, which is the world’s largest DC market, according to research firm 451 Research LLC.
- Post-acquisition, > 70% of Mapletree Industrial Trust’s overseas DCs will be located in the top 15 DC markets in North America. In addition, Mapletree Industrial Trust’s income stability is enhanced with only 17.1%/15.4% of the enlarged portfolio gross rental income expiring in FY3/21F and FY3/22F vs. the current 17.7% and 17%, respectively.
Acquisition to be funded through a private placement exercise
- The deal is to be fully funded by equity, through a private placement of no less than S$350m, subject to an upsize option to raise additional gross proceeds of no less than S$50m. The excess proceeds will be deployed towards debt repayment, future acquisitions or for working capital purposes.
- In terms of financial impact, based on an initial NPI yield of 6.8%, management expects the deal to be accretive to DPU and NAV.
- According to management’s pro-forma estimates, on a full-year basis, the acquisition is anticipated to raise FY3/20 DPU by 3.4% and increase FY3/20 book NAV by 3.7%. Post-acquisition aggregate leverage will rise to 38.7%.
Downgrade to HOLD on valuations
- We have revised our FY21-23F DPU estimates by 0.8-2.9% to factor in 5 months on contributions in FY21F, assuming the transaction is completed by end-3QCY20F and taking into account 128.112m new units issued to raise S$350m of gross proceeds. Accordingly, our DDM-based Target Price is revised to S$2.81.
- While we like this accretive acquisition, Mapletree Industrial Trust's share price has appreciated by c.15% since end-Apr and the stock is currently trading at c.4.3% FY21F DPU yield, above its +1 s.d. 7-year yield band. Hence, we lower our recommendation to HOLD from Add on valuations.
- See Mapletree Industrial Trust Share Price; Mapletree Industrial Trust Target Price; Mapletree Industrial Trust Analyst Reports; Mapletree Industrial Trust Dividend History; Mapletree Industrial Trust Announcements; Mapletree Industrial Trust Latest News.
- Downside risk: Longer-than-expected economic recovery that could drag on rental and occupancy outlook for its flatted factory properties.
- Upside risk: Faster-than-projected recovery from the COVID-19 pandemic that could boost economic activity and more accretive new acquisitions.
LOCK Mun Yee
CGS-CIMB Research
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EING Kar Mei CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-06-23
SGX Stock
Analyst Report
2.81
UP
2.660
