Mapletree Industrial Trust - CGS-CIMB Research 2021-05-20: Boosting US Data Centre Exposure

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MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Mapletree Industrial Trust - Boosting US Data Centre Exposure

• Mapletree Industrial Trust has proposed the purchase of 29 US data centres for US$1.32bn.
• Deal is DPU and NAV accretive while post-acquisition gearing is at 40.3%
• Reiterate ADD with unchanged DDM-based target price of S$3.05.

Mapletree Industrial Trust acquires US$1.32bn of US data centres

• Mapletree Industrial Trust (SGX:ME8U) proposed to acquire a portfolio of 29 US data centres (DC) from Sila Realty Trust Inc for US$1,320m, or at a 1.1% discount to end-Apr 21 valuation. The portfolio is 87.8% leased to 32 tenants including Fortune Global 500 corporations and MNCs with investment grade credit ratings, has a weighted average lease expiry (WALE) of 7.9 years and comprises mainly powered shell properties (64%).
• The target completion date is scheduled for 3QCY21.

Increasing Mapletree Industrial Trust's data centre exposure to 53.6% of enlarged AUM

• The purchase will increase Mapletree Industrial Trust’s exposure to the DC segment to 53.6% of enlarged asset under management (AUM), making it one of the largest DC owners amongst APAC listed REITs, according to management, while reducing its exposure to the flatted factories segment to 17.1%. This is in line with Mapletree Industrial Trust’s target for DCs to make up two-thirds of its portfolio in the medium term.
• The portfolio will add new US markets (Chicago, Los Angeles and Houston) and strengthen its footprint in the top 15 US DC markets. It will also lengthen Mapletree Industrial Trust's portfolio WALE to 4.6 years.
• Income stability of the enlarged portfolio is enhanced with 81.7% of portfolio gross rental income (GRI) on triple new lease structures, and 89.4% of the leases with in-built rental escalations of 1.5-3% p.a.
• The deal is DPU (+3.3% on a proforma basis) and NAV (+6% on a proforma basis) accretive, based on an initial NPI yield of 5.1%, with potential to increase when occupancy at the largest asset, 250 Williams Street in Atlanta, improves.

Deal is DPU accretive

• The total cost of US$1,345.1m (S$1,815.9m), including transaction costs, will be funded by a combination of debt (60%) and an equity fund raising exercise of S$800m (private placement of 190.259m units at S$2.628-2.696 and a non-renounceable preferential offer on a five new units for every 100 existing units, at S$2.57-2.64).
• Post-acquisition and after factoring in the recent perpetuals issuance, we estimate gearing would be 40.3%, still within the guideline.

Maintain ADD rating

• We leave our FY22-24F DPU estimates for Mapletree Industrial Trust unchanged pending completion of the transaction.
• Our DDM-based target price for Mapletree Industrial Trust remains at S$3.05.
• See
  • Mapletree Industrial Trust's Share Price,
  • Mapletree Industrial Trust's Target Price,
  • Mapletree Industrial Trust's Analyst Reports,
  • Mapletree Industrial Trust's Dividend History,
  • Mapletree Industrial Trust's Announcements,
  • Mapletree Industrial Trust's Latest News.
• Upside catalyst: distribution of divestment gains (not factored into our current estimates).
• Downside risk: protracted recovery leading to longer recovery period in vacancies and rentals.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-20

SGX Stock Analyst Report ADD MAINTAIN ADD 3.050 SAME 3.050