Mapletree Industrial Trust - DBS Research 2020-09-15: Fuel For The Digital World

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Fuel For The Digital World

Surprise proposed of acquisition of datacenter to further pivot Mapletree Industrial Trust as an emerging play for the digital world.
US datacenter to increase to c.34% of asset value.
Positive deal metrics and a hallmark of the manager’s consistent value driven strategy.
Gearing to inch up to 40%; manager may consider part funding with equity given attractive cost of capital.

Mapletree Industrial Trust (SGX:ME8U) entered into a sale and purchase agreement with a third-party vendor for the proposed acquisition of a data centre and office located in Virginia, US.
The property will be priced at US$200.6m to 262.1m, subject to calibration of terms; and, purchase price is 2.2% and 1.5% below independent property valuer Cushman & Wakefield’s valuation of the property (as of 31 August 2020).
The property will come with a WALE of more than five years (3x basis) to a multinational company with strong credit standing.
No further details provided (yields, etc.) given the confidentiality at this point; the manager will provide more details later.
Acquisition expected to complete in 1Q21.

We view that Mapletree Industrial Trust has continued to deliver on its consistent strategy to deliver improved earnings visibility and stability to unitholders (WALE extended to 4.3 years vs 4.2 years currently).
The triple-net lease means that there will be minimal capex requirements on Mapletree Industrial Trust, as the tenant will be in charge of outgoings and associated costs.
The tenant will be the fifth-largest tenant in its portfolio at 2.7% of its gross rental income (as of 30 June 2020); we look forward to the unmasking of this “mystery tenant” in due course.
The REIT’s will see an expanded 34.7% exposure to US data centres (vs 32% as of June 2020), post the completion of the deal.
That said, we note that the WALE is a little on the shorter end of the spectrum (ranging from 5-20 years) for deals that were transacted but we will be looking forward to more details upon completion. We do note that this may mean a potential vacancy risk in the medium term (subject to the tenure of the tenant utilising the current premises and ability to deliver higher-power capacity), which is something we will be keeping an extra eye on.

Consensus and ourselves have not have priced in a deal and thus we would likely see an upside surprise to estimates; the manager has mentioned that it will be “accretive” across the price range.
Assuming the acquisition is debt-funded, gearing is expected to rise to c.40.5% (vs 38% as previously estimated), while it may make sense for Mapletree Industrial Trust to consider tapping the equity market to part fund the deal (equity forward FY22 yield of c.4.2%). It may be a tad too soon now (last fund-raising was in June 2020) but may be considered upon completion (1Q21), in our view.
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.

Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2020-09-15

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