MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)
Mapletree Industrial Trust - Sizeable Acquisition To Reposition Towards The New Economy
- Mapletree Industrial Trust expanded the breadth and depth of its presence in the data centre market in North America through its latest acquisition of 29 data centres which increased its exposure to data centres by 12.4ppt to 53.6% of AUM. The acquisition will provide income stability through its long WALE of 7.9 years.
- We raised our FY23F DPU forecast by 3%. Mapletree Industrial Trust provides FY23 distribution yield of 5.2% vs Keppel DC REIT (SGX:AJBU)’s 4%. Maintain BUY. Target price: S$3.62.
WHAT’S NEW
Scaling up in data centres.
- Mapletree Industrial Trust (SGX:ME8U) has entered into a sale and purchase agreement to acquire 29 data centres (powered shell data centres: 63.9% and fitted data centres: 36.1%) located across 18 states in the US at a purchase consideration of US$1,320m (S$1,782m). The vendor Sila Realty Trust is a private REIT reaching the end of its fund life. NPI yield for the acquisition is 5.1% (5.4% if we exclude 250 Williams Street located in downtown Atlanta).
AUM expands 26% to S$8.6b.
- The acquisition is in line with Mapletree Industrial Trust’s strategic efforts to reshape its portfolio toward higher value uses. Its target is for data centres to comprise up to two-thirds of total portfolio. The acquisition increases exposure to data centres from 41.2% to 53.6% of Mapletree Industrial Trust’s AUM.
- The acquisition deepens Mapletree Industrial Trust’s presence in the key markets of Northern Virginia and Atlanta and gains exposure to new established markets, such as Chicago, Los Angeles and Houston. Importantly, the deal propels Mapletree Industrial Trust to become one of the largest data centre REITs listed in the Asia Pacific.
Acquisition enhances income stability.
- 87.8% of the new portfolio is leased to 32 tenants, including Fortune Global 500 corporations and NYSE/NASDAQ-listed companies. The new portfolio has a long weighted average lease to expiry (WALE) of 7.9 years, which will increase Mapletree Industrial Trust’s overall WALE higher, from 4.0 to 4.6 years. The new portfolio’s occupancy is 87.8%. 81.7% of leases are triple net leases with all outgoings borne by the tenants. 89.4% of leases have rental escalation 1.5-3.0% per year.
Almost two-thirds of Mapletree Industrial Trust’s portfolio comprises freehold properties.
- The portfolio sits on land area of 8.4m sf and has NLA of 3.3m sf. Freehold properties will increase 55.9% to 65.8% of Mapletree Industrial Trust’s enlarged portfolio by land area.
STOCK IMPACT
Rebalancing towards growth from the New Economy.
- Mapletree Industrial Trust aims to allocate two-thirds of AUM to data centres over the medium term (3-5 years). Besides the US, Mapletree Industrial Trust 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.
MINTing growth from data centres.
- According to 451 Research, global leased data centre market revenue is projected to expand by CAGR of 9.2% during 2019-2025F driven by the rollout of 5G networks, Internet of Things (proliferation of new consumer devices) and autonomous vehicles. The usage of e-commerce, e-payments, social media, online gaming and video streaming have accelerated due to the COVID-19 pandemic.
- Demand is also being driven by 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.
Acquisition is DPU and NAV accretive.
- The acquisition is expected to increase pro forma FY21 DPU by 3.3% and NAV by 6.0%. Mapletree Industrial Trust plans to raise gross equity proceeds of S$800m (40%) and the balance 60% of the total acquisition outlay is to be funded by additional debt. Aggregate leverage is expected to increase from 36.0% to 40.3%. It is expected to be completed by 2QFY22.
Room for value creation through asset enhancement.
- The new portfolio will benefit from strong demand for data centre capacity in Atlanta. 250 Williams Street with its prime location within Downtown Atlanta accounted for 30.2% of the new portfolio’s NLA. There is potential for an asset enhancement initiative to convert 50% of the property’s NLA currently utilised for commercial purposes into data centre space.
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.
EARNINGS REVISION/RISK
- We raised our Mapletree Industrial Trust's FY23F DPU forecast by 3% due to contribution from the 29 newly-acquired data centres in the US. We have assumed that Mapletree Industrial Trust placed out 303m new units at an issue price of S$2.65 each and cost of additional debt at 2.5%.
VALUATION/RECOMMENDATION
- Maintain BUY on Mapletree Industrial Trust. We raised our target price for Mapletree Industrial Trust from S$3.55 to S$3.62 based on the dividend discount model (cost of equity: 6.0%, terminal growth: 2.0%).
- See
SHARE PRICE CATALYST
- Growth from data centres located in Singapore and North America.
- Acquisition of the remaining 50% stake in the portfolio of 13 data centres (second JV) from apletree Investments.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-05-21
SGX Stock
Analyst Report
3.62
UP
3.500
