SINGAPORE (Oct 26): Mapletree Industrial Trust on Tuesday announced its 2Q17/18 earnings declaring a 6% increase in DPU to 3 cents compared to 2.83 cents last year.
This was due to a one-off gain from a pre-termination compensation of $3.1 million from Johnson & Johnson. If not for this, DPU would have remained flat y-o-y.
See: Mapletree Industrial Trust's 2Q DPU up 6% to 3 cents on one-off gain
The trust also on Tuesday announced that it has entered into a joint venture (JV) with Mapletree Investments to acquire a portfolio of 14 data centres in the US for $1.02 billion.
MIT will hold 40% stake in the JV – Mapletree Redwood Date Centre – while Mapletree investments will hold the remaining 60%.
See also: Mapletree Industrial Trust in JV to acquire 14 data centres in US for $1.02 bil
Following the announcements, CIMB is maintaining its “hold” call on Mapletree Industrial Trust (MIT) with a target price of $1.94.
MIT has been granted a right of first refusal (ROFR) to acquire the remaining 60% interest in the JV by Mapletree Investments. The vendor is Carter Validus Mission Critical REIT and from MIT’s perspective, the total consideration is US$304.8 million ($415.0 million), which would be funded via debt and equity in the ratio of 37:63.
In a Wednesday report, analyst Yeo Zhi Bin likes the acquisition as it offers income certainty and it “ticks all the right boxes” – 90.6% of the portfolio (by GRI) is leased on a sell and core basis, which mitigates capex and operational issues; it has a blue-chip tenant base; 97.4% occupancy; WALE of 6.7 years, with minimal lease expiries of 1.3% over the next three years.
“Our only concern is the age of these data centres (average age of 40), which raises tail-end risks of structural vacancies should existing tenants not renew their leases,” says Yeo.
OCBC is also maintaining its “hold” rating on MIT with a target price of $1.92.
The trust’s 2Q results met the research house’s expectations.
The value of the acquisition at $1.02 billion is a discount of 3.4% to the independent valuation and marks MIT’s first venture overseas.
In a Wednesday report, analyst Andy Wong Teck Ching says, “We are positive on the proposed acquisition as the properties are sited on freehold land, have a long WALE of 6.7 years (by gross rental income) with triple net lease structures and come with a high occupancy of 97.4%.”
Total acquisition cost for MIT’s 40% interest works out to be US$304.8 million ($414.6 million).
The trust will fund the acquisition through private placement (29.6% of total cost) and bank borrowings (70.4% of total cost). According to MIT, the pro forma impact would be a 2.3% accretion to its FY17 DPU.
“Pending the conclusion of this transaction (expected in 4Q17), we have not factored it in our model,” Says Wong.
Maybank Kim Eng however is reiterating its “buy” recommendation on MIT with a higher target price of $2.10.
The acquisition of the data centres comes just a month after the announcement of MIT’s expanded investment mandate, and pushes data centres contribution from 6.5% to 16.6% of its AUM compared to the management’s 20.0% target.
In a Thursday report, analyst Chua Su Tye says, “We see strong demand fundamentals as a timely offset to an expected recovery lag in its domestic portfolio.”
Currently, the 2.3 million sf freehold property is leased to 15 high-quality tenants. The top five accounts for 74% of its gross rental income.
Meanwhile, 90.6% of the portfolio is leased out on a core-and-shell basis, with the balance on triple-net at 97.4% occupancy
As at 12.02pm, units in MIT are trading at $1.98 or 1.38 times CIMB's FY18 book with a dividend yield of 5.82%.
