Mapletree Industrial Trust - UOB Kay Hian 2021-10-28: 2QFY22 Build Scale & Enhance Geographical Diversification In Data Centres


Mapletree Industrial Trust - 2QFY22 Build Scale & Enhance Geographical Diversification In Data Centres

  • Mapletree Industrial Trust (SGX:ME8U)'s 2QFY22 DPU grew 11.9% y-o-y due to acquisition of the remaining 60% stake in the first data centre JV, 8011 Villa Park Drive in Richmond, Virginia, and the latest acquisition of 29 US data centres.
  • Mapletree Industrial Trust aims to allocate two-thirds of AUM to data centres. Acquisition of the remaining 50% stake in the second data centre JV could materialise in 2HFY22. It plans to diversify geographically to Europe and the Asia Pacific region.
  • Mapletree Industrial Trust provides FY22F distribution yield of 5.2%. Maintain BUY. Target price: S$3.72.

Mapletree Industrial Trust (MINT) reported DPU of 3.47 cents (+11.9% y-o-y) for 2QFY22, above expectations.

  • Accelerated growth driven by acquisitions of data centres. Gross revenue and NPI grew 50.5% and 47.4% y-o-y respectively in 2QFY22 driven by:
    1. consolidation of the first data centre JV with sponsor Mapletree Investments that owns 14 US data centres (acquisition of the remaining 60% stake was completed on 1 Sep 20),
    2. acquisition of 8011 Villa Park Drive in Richmond, Virginia completed on 12 Mar 21, and
    3. acquisition of 29 US data centres completed on 22 Jul 21.
  • Occupancy dipped due to latest acquisition of US data centres. Portfolio occupancy eased 0.6ppt q-o-q to 93.7% in 2QFY22. Occupancy for its Singapore portfolio improved marginally by 0.2ppt q-o-q to 93.6%, driven mainly by Flatted Factories (+1.0ppt q-o-q to 92%). Occupancy for business parks dipped 1ppt q-o-q to 82.6% due to downsizing by a chemical tenant. Occupancy for its North America portfolio dropped 3.9ppt q-o-q to 93.9% due to lower average occupancy of 87.8% for the newly-acquired 29 US data centres. Mapletree Industrial Trust has appointed an external leasing firm to lease out vacant commercial space at 250 Williams Street in Atlanta so as to improve occupancy for its North America portfolio.
  • Business Park rents under pressure. The average rental rate for the Singapore portfolio increased 4.9% y-o-y to S$2.13psf/month in 2QFY22 due to a low base with Mapletree Industrial Trust incurring rental relief of S$4.6m in 2QFY21. Business Park buildings incurred negative rental reversion of 5.8% due to competition. Management continues to place priority on maximising occupancy. Thus, overall retention rate was heathy at 80.8%.
  • Completed sizeable acquisition of 29 US data centres worth US$1.3b. 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 21. NPI yield for the acquisition is 5.1%. AUM expanded 26% to S$8.6b. The acquisition increased 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 1.5-3.0% per year. The acquisition is estimated to increase pro forma FY21 DPU by 3.3% and NAV by 6.0%.
  • Strong balance sheet. Aggregate leverage increased 8.6ppt q-o-q to 39.6% in 2QFY22 due to additional loans drawn to fund the acquisition of 29 US data centres. Interest coverage ratio remains healthy at 6.7x. Its weighted average tenor of debt is 2.9 years.

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.
  • Pursuing more growth through acquisitions of data centres. Mapletree Industrial Trust has the right of first refusal from the sponsor Mapletree Investments to acquire the remaining 50% stake in their second data centre JV Mapletree Rosewood Data Centre Trust (MRODCT). The acquisition could materialise within 2HFY22. Mapletree Industrial Trust is also on the lookout to acquire data centres from third-party vendors. It intends to diversify geographically to Europe and other gateway cities in the Asia Pacific region.
  • Redevelopment of the Kolam Ayer 2 Cluster. Mapletree Industrial Trust commenced construction for the 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 (previously: 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 accounts 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 in achieving yield on costs of > 7%.

Earnings revision

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-10-28
SGX Stock Analyst Report BUY MAINTAIN BUY 3.72 UP 3.630