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Mapletree Industrial Trust - UOB Kay Hian 2021-07-30: 1QFY22 DPU Expected To Pick Up In 2HFY22

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

Mapletree Industrial Trust - 1QFY22 DPU Expected To Pick Up In 2HFY22

  • Mapletree Industrial Trust's 1QFY22 DPU grew 16.7% y-o-y due to consolidation of the first JV with 14 US data centres and acquisition of 8011 Villa Park Drive.
  • Mapletree Industrial Trust’s hi-tech buildings, business park buildings and flatted factories are less affected by the COVID-19 pandemic and rental relief is not expected to be substantial. Acquisition of the remaining 50% stake in 13 data centres in North America (second JV) could materialise in 2HFY22.
  • Mapletree Industrial Trust provides FY22 distribution yield of 4.7%. Maintain BUY. Target price: S$3.63.



Mapletree Industrial Trust (MINT)'s 1QFY22 Results

  • Mapletree Industrial Trust (SGX:ME8U) reported DPU of S$0.0335 (+16.7% y-o-y) for 1QFY22, which is in line with our expectations. Growth in distributable income would be 17.2% y-o-y if we exclude tax-exempt income of S$7.1m retained in 1QFY21.
  • Accelerated growth driven by acquisitions of data centres. Gross revenue and NPI grew 29.2% and 33.1% y-o-y in 1QFY22 respectively, driven by the consolidation of first data centre JV with 14 US data centres (acquisition of the remaining 60% stake completed on 1 Sep 20), acquisition of 8011 Villa Park Drive in Richmond, Virginia (completed on 12 Mar 21). The average rental rate of its Singapore portfolio increased 2.4% y-o-y and 3.9% q-o-q to S$2.13psf/month in 1QFY22 due to the absence of rental relief, which amounted to S$2.5m in 1QFY21 and S$3.7m in 4QFY21.
  • Occupancy trended higher. Portfolio occupancy improved 0.6ppt q-o-q to 94.3% in 1QFY22. Occupancy for its Singapore portfolio improved 0.5ppt q-o-q to 93.4%, driven mainly by flatted factories (+1.1ppt q-o-q to 91%) and hi-tech Buildings (+0.5ppt q-o-q to 99%). Leasing activities have picked up as business confidence improves. High-tech building 30A Kallang Place has also secured new leases. Occupancy for its North America portfolio edged higher by 0.2ppt q-o-q to 97.8% due to the addition of 8011 Villa Park Drive.
  • Business park rents under some pressure. Business park buildings incurred negative rental reversion of 7.1% due to the renewal for 10 years by a large tenant at Synergy, which also took up an additional 30,000sf of space. Management continues to place priority on maximising occupancy. Thus, overall retention rate was heathy at 81.8%.
  • Completes US$1.3b acquisition of 29 data centres. Mapletree Industrial Trust has completed the acquisition of 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) on 22 Jul 2021. NPI yield for the acquisition is 5.1%. AUM expanded 26% to S$8.6b. The acquisition increases exposure to data centres from 41.2% to 53.6% of Mapletree Industrial Trust’s AUM.
  • The portfolio has a long weighted average lease to expiry (WALE) of 7.9 years, which will increase Mapletree Industrial Trust’s overall WALE from 4.0 to 4.6 years. 81.7% of leases are triple net leases with all outgoings borne by tenants. 89.4% of leases have rental escalation of 1.5-3.0% per year. The acquisition is expected to increase pro forma FY21 DPU by 3.3% and NAV by 6.0%.
  • Balance sheet coping well with the sizeable acquisition. Mapletree Industrial Trust has raised S$823.3m from its equity fund raising and S$300m from its inaugural issuance of perpetual securities to support the US$1.3b acquisition of 29 data centres. Thus, aggregate leverage has dropped 10.3ppt q-o-q to 31% as of Jun 21. Aggregate leverage has increased to 40.3% after the acquisition was completed on 22 Jul 21. Interest coverage ratio remains healthy at 6.1x. All-in cost of debts has improved 0.1ppt q-o-q to 2.7%.


STOCK IMPACT

  • MINTing growth from data centres. Mapletree Industrial Trust aims to allocate two-thirds of AUM to data centres over the medium term (3-5 years). The COVID-19 pandemic has boosted demand for its data centres in Singapore and North America. Mapletree Industrial Trust’s hi-tech buildings, business park buildings and flatted factories are less affected by the COVID-19 pandemic. Mapletree Industrial Trust intends to provide rental relief for F&B outlets and canteen operators due to Phase 2 (Heightened Alert) but the amount is not expected to be substantial.
  • Hunting for more growth. Mapletree Industrial Trust has the right of first refusal from the sponsor Mapletree Investments to acquire 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.
  • Sharing the spoils. The divestment of 26A Ayer Rajah Crescent, Singapore was completed on 25 Jun 21. Management intends to distribute net divestment gains of S$15.7m over eight quarters starting 2QFY22. We expect Mapletree Industrial Trust to release previously-retained tax-exempt income of S$6.6m in 4QFY22.
  • Growth from new and evolving technologies. Demand for data centre space will continue to expand, driven by 5G, edge computing and Internet of Things. According to 451 Research, North America is the world’s second largest data centre region and accounted for about 30.5% of the global insourced and outsourced data centre space. Leased data centre supply (by net operational sf) and demand (by net utilised sf) are expected to grow at a CAGR of 7% and 8% respectively between 2019 and 2025F.
  • 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%). It has secured pre-commitment from an anchor tenant (global medical device company headquartered in Germany) for the built-to-suit facility on a 15+5+5 year term, which account for 24.4% of the enlarged GFA.
  • Completion for the redevelopment is expected in 2H22 (161 & 163 Kallang Way) and 1H23 (165 Kallang Way). 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%.


EARNINGS REVISION/RISK

  • We increase our FY22 and FY23 DPU forecasts by 2.0% and 1.7% respectively due to a slight decline in cost of debts and distribution of net divestment gains from 26A Ayer Rajah Crescent.

VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Growth from data centres located in Singapore and North America.
  • remaining 50% stake in portfolio of 13 data centres (second JV) from sponsor e Investments.





Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-07-30
SGX Stock Analyst Report BUY MAINTAIN BUY 3.630 UP 3.620



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