Mapletree Industrial Trust - UOB Kay Hian 2021-02-01: 3QFY21 Minting Growth Through Data Centres

MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - 3QFY21 Minting Growth Through Data Centres

Mapletree Industrial Trust's 3QFY21 DPU grew 5.8% y-o-y due to full-quarter contribution from acquisition of the remaining 60% stake in 14 data centres in the US (first JV), which was completed on 1 Sep 20. Rental relief has also dropped 58.7% q-o-q to S$1.9m.
Potential acquisition of the remaining 50% stake in 13 data centres in North America (second JV) remains the main catalyst.
Mapletree Industrial Trust provides exposure to growth from data centres at a decent FY22F distribution yield of 4.8%. Maintain BUY. Target price: S$3.45.

Mapletree Industrial Trust (SGX:ME8U) reported 3QFY21 DPU of 3.28 cents, up 5.8% y-o-y and 3.8% q-o-q. The results were in line with our expectations.

The acquisition of the remaining 60% stake in 14 data centres in the US was completed on 1 Sep 20 (full-quarter contribution from first data centre JV). Mapletree Industrial Trust currently owns 100% of the first JV and 50% of the second JV. Exposure to data centres has expanded by 12ppt y-o-y to 38.2% of AUM (Singapore: 6.5%, North America: 31.7%). Distribution declared by its data centre JVs with sponsor Mapletree Investments increased by 29.3% y-o-y to S$8.7m.
Gross revenue from Hi-Tech Buildings increased 2.4% y-o-y. Gross revenue from Flatted Factories declined 6.6% due to redevelopment of Kolam Ayer 2 Cluster.

The good performance was achieved despite rental reliefs extended to tenants of S$1.9m (1QFY21: S$2.5m and 2QFY21: S$4.6m) and loss of revenue caused by redevelopment of Kolam Ayer 2 Cluster. The average rental rate of the Singapore portfolio increased 3.9% q-o-q to S$2.11psf pm in 3QFY21 due to less rental rebates being crystallised.
Mapletree Industrial Trust did not withhold any income in 2QFY21 and 3QFY21 (1QFY21: withheld S$7.1m).

Mapletree Industrial Trust's portfolio occupancy improved by 0.8ppt q-o-q to 93.1% in 3QFY21 driven by Singapore portfolio (+0.7ppt q-o-q to 92.2%). Occupancies for Flatted Factories improved 1.6ppt q-o-q to 89.7%. The weighted average lease to expiry (WALE) was relatively unchanged at 4.1 years (Singapore: 3.3 years, North America: 6.3 years).

Hi-Tech Buildings and Flatted Factories saw negative reversions of 1.7% and 2.9% respectively in 3QFY21 due to the dismal macro environment aggravated by supply chain disruption from the COVID-19 pandemic. Management will strive to contain negative reversions for Flatted Factories at 4-5%.

Mapletree Industrial Trust secured a S$300m sustainability-linked facility with tenure of up to six years during the quarter, which helps to diversify Mapletree Industrial Trust’s funding sources.
Aggregate leverage has improved by 0.8ppt q-o-q to 37.3%. Mapletree Industrial Trust does not have any debt maturing in 4QFY21. It has more than S$600m of undrawn committed credit facilities available.

The recovery in the global economy is expected to be subdued. Business sentiment is expected to remain volatile in 1H21. Management intends to grow data centres and hi-tech buildings through acquisitions and developments. 54% of the Singapore portfolio (40% of total portfolio) by gross rental income comprises SME tenants.
Mapletree Industrial Trust has extended rental relief of S$9m to support its tenants. Management expects additional rental relief for SME tenants to crystallise in 4QFY21, which will affect FY21 DPU.

According to 451 Research, demand for leased data centres (by net utilised sf) is expected to grow at a faster 6% CAGR (vs 5% CAGR supply growth) in North America between 2018 and 2024. Data centres are also deemed as essential services in the US and Canada, and thus remained open during the current COVID-19 pandemic. The underlying long WALE of 6.3 years for Mapletree Industrial Trust’s data centres in North America also adds to income resilience.

Mapletree Industrial Trust commenced construction for redevelopment of the Kolam Ayer 2 Flatted Factory into a high-tech industrial precinct in Nov 20, which will raise its plot ratio to 2.5x (previous: 1.5x) and increase its GFA to 865,600sf (+71%). Management has secured pre-commitment from an anchor tenant (global medical device company headquartered in Germany) for 24.4% of the enlarged GFA, which comprises a BTS facility on a 15+5+5 year term with annual rental escalation.
Unfortunately, construction costs have increased by 14% to S$300m but management remains confident of achieving yield on costs of > 7%. Completion for the redevelopment is expected in 2H22.

We maintain our existing DPU forecast for Mapletree Industrial Trust. Our target price of S$3.45 is based on DDM (COE: 6.0%, terminal growth: 2.0%).
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.
Catalysts include: Growth from data centres located in Singapore and North America; Acquisition of the remaining 50% stake in portfolio of 13 data centres (second JV) from pletree Investments.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-01

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