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Mapletree Industrial Trust - UOB Kay Hian 2021-03-31: MINTing Growth & Resiliency Through Data Centres

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

Mapletree Industrial Trust - MINTing Growth & Resiliency Through Data Centres

  • Mapletree Industrial Trust is committed to its goal of allocating two-thirds of AUM to data centres. It has to acquire at least S$1b worth of data centres per year over the next five years to realise its vision. It has just completed the acquisition of another data centre in Richmond, Virginia and could move on to acquire the remaining 50% stake in a second data centre JV from Mapletree Investments in FY22.
  • Mapletree Industrial Trust provides FY22 distribution yield of 5%, vs Keppel DC REIT (SGX:AJBU)’s 4%. Maintain BUY. Target price: S$3.50.



WHAT’S NEW


Further expansion in data centres.

  • Mapletree Industrial Trust (SGX:ME8U) has completed the acquisition of a data centre and office located at Richmond, Virginia in the US for US$207.8m (after upfront discount) in Mar 21. The freehold property has land area of 2m sf and NLA of 700,000sf. The value attached to the data centre is more than 50% of the total valuation. The property provides an initial NPI yield of 6%.

The property is fully leased to one multinational company on a triple net basis.

  • The tenant has the option to renew and extend the lease for three consecutive periods of five years. It has renewed the lease for the first 5-year term commencing 11 Jun 22. The vendor has provided an upfront discount of US$16.9m due to the absence of rental income from 13 Mar 21 to 10 Jun 22 (period of about 15 months).

Mapletree Industrial Trust's AUM will increase 4.5% to S$6.9b.

  • Data centres will expand from 38.2% to 40.8% of assets under management (AUM). The exposure to North America will increase from 31.7% to 34.5%. Freehold properties will increase from 51.8% to 55.9%. The new tenant will become Mapletree Industrial Trust's 5th largest tenant, accounting for 2.9% of gross rental income.

Acquisition is DPU accretive.

  • The acquisition was fully funded by debt. Management estimates that the transaction is accretive to pro forma FY20 DPU by 2.0%.

Data centres provide growth and resiliency.

  • According to 451 Research, global outsourced data centre space (leased and cloud provider-owned) is forecasted to grow at a CAGR of 9.5%, compared with a contraction at CAGR of 0.9% for insourced data centre space, from 2018 to 2024F. Demand is driven by the proliferation of new consumer devices data centre space and the need to have data centres at multiple locations to store data close to the end-users, disaster-recovery and business-continuity purposes and local storage of data to comply with data sovereignty regulations. Global revenue for cloud computing is expected to grow at a CAGR of 14%.
  • Mapletree Industrial Trust’s data centres in North America have underlying long WALE of 6.3 years, which provide income resilience. The US is the world’s largest data centre market, accounting for 28% of global data centre space.


STOCK IMPACT


Rebalance towards growth from data centres.

  • Mapletree Industrial Trust aims to allocate two-thirds of AUM to data centres over the medium term (3-5 years). It is keen to invest in established data centre markets in Europe (Frankfurt, London, Amsterdam, Paris and Dublin) and Asia Pacific (Singapore, Hong Kong, Japan and Australia). These strategically located markets are in countries with highly developed communications infrastructure. Management plans to rebalance Mapletree Industrial Trust’s portfolio towards data centres and high-tech buildings through acquisitions, built-to-suit development projects and asset enhancement initiatives.

Hunting for more growth.

  • Mapletree Industrial Trust has the right of first refusal (ROFR) from the sponsor Mapletree Investments for the acquisition of the remaining 50% interest in the second data centre JV Mapletree Rosewood Data Centre Trust (MRODCT). It is also on the lookout to acquire data centres from third-party vendors.

Redevelopment of the Kolam Ayer 2 Cluster.

  • 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.
  • Construction costs have increased by 14% to S$300m due to the COVID-19 pandemic but management remains confident of achieving yield on costs of > 7%. Completion for the redevelopment is expected in 2H22.

Likely to incur rental relief for SME tenants in 4QFY21.

  • 54% of the Singapore portfolio (40% of total portfolio) by gross rental income comprises SME tenants. Management estimated total rental relief (excluding property tax rebates and cash grants from the government) of S$14m-15m in FY21, which is lower than the previous guidance of S$20m. Mapletree Industrial Trust has extended rental relief of S$9m to support its tenants in 9MFY21. Management expects additional rental relief for SME tenants of S$5m-6m to crystallise in 4QFY21.
  • Rental arrears of more than one month remain low at 1.4% of gross revenue as of Dec 20.

EARNINGS REVISION/RISK

  • We raised our Mapletree Industrial Trust's DPU forecast for FY22 by 1% due to contribution from the newly-acquired data centre located at Richmond, Virginia.


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • 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 sponsor Mapletree Investments.





Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-31
SGX Stock Analyst Report BUY MAINTAIN BUY 3.50 UP 3.450



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