3QFY22: Exploring Acquisitions And Development Projects Overseas
3QFY22 DPU grew 6.4% yoy due to the acquisition of 29 US data centres and 8011 Villa Park Drive in Richmond, Virginia. MINT plans to diversify geographically to Europe and the Asia Pacific region. It will explore the acquisition and development of data centres, hi-tech buildings and R&D facilities in overseas markets. It has resumed the DRP for 3QFY22 distribution. MINT provides FY22F attractive distribution yield of 5.2% (KDCREIT: 4.2%). Maintain BUY. Target price: S$3.72.
RESULTS
• Mapletree Industrial Trust (MINT) reported DPU of 3.49 S cents (+6.4% yoy) for 3QFY22, which is in line with our expectations.
• Accelerated growth driven by acquisitions of data centres. Gross revenue and NPI grew 31.3% and 24.1% yoy respectively in 3QFY22 driven by: a) the acquisition of 29 US data centres completed on 22 Jul 21, and b) the acquisition of 8011 Villa Park Drive in Richmond, Virginia completed on 12 Mar 21.
• Stable occupancies. Portfolio occupancy was relatively unchanged at 93.6% in 3QFY22. Occupancy for its Singapore portfolio edged marginally higher by 0.1ppt qoq to 93.7%, driven by Business Park Buildings (+0.4ppt qoq to 83%) and Stack-up/Ramp-up Buildings (+1.2ppt qoq to 97.6%). Occupancy for data centres moderated 0.6ppt qoq as the 29 newly-acquired data centres in the US have lower average occupancy of 87.4%.
• Benefitting from improvement in business sentiment. Management estimates positive rental reversion at 1% in 3QFY22. MINT secured attractive rental rates for new leases for hi-tec buildings at $3.12psf (14 new leases, +29%) and business park buildings at $3.72psf (2 new leases, +21%). Retention rate was heathy at 84%.
• Small divestment. MINT has proposed to divest 19 Changi South Street 1, a two-storey light industrial building with a four-storey extension block, for S$13m. The property has a 30-year land lease commencing from 16 Nov 96 with an option to extend for another 30 years. Proceeds from the divestment would be utilised to fund committed investments, working capital requirements and reduce existing debt.
• Strong balance sheet. Aggregate leverage edged marginally higher by 0.3ppt qoq to 39.9% in 3QFY22. Interest coverage ratio remains healthy at 6.4x. Its weighted average tenor of debt has increased from 2.9 to 3.5 years after MINT secured a new six-year term loan of S$491.4m.
STOCK IMPACT
• MINTing growth from data centres. Management plans to strengthen the portfolio through strategic acquisitions and developments. Management expects the moratorium on building of new data centres to be lifted soon. The authorities are likely to impose more stringent requirements on power usage efficiency. If permitted, MINT intends to convert one block of industrial building at Kolam Ayer 2 Cluster into a data centre.
• Plotting more expansion overseas. MINT will explore acquisitions and developments of data centres, hi-tech buildings and R&D facilities in overseas markets. This could entail an expansion in the scope of its mandate to invest overseas, which is currently restricted to just data centres.
• Strengthening balance sheet through DRP. MINT has resumed the distribution reinvestment plan (DRP) for 3QFY22 distribution. The issue price of each new unit under the DRP is set at a 1.0% discount to the adjusted volume-weighted average traded price. The DRP will help MINT to gradually lower its aggregate leverage and also finance progressive payments for development projects.
• Redeveloping the Kolam Ayer 2 Cluster. MINT 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 of the redevelopment is expected in 2H22 (161 & 163 Kallang Way) and 1H23 (165 Kallang Way). Construction costs have increased 14% to S$300m due to the COVID-19 pandemic but management remains confident in achieving yield on costs of >7%.
EARNINGS REVISION/RISK
• We maintain our existing DPU forecast.
VALUATION/RECOMMENDATION
• Maintain BUY. Our target price of S$3.72 is based on DDM (cost of equity: 5.75%, terminal growth: 2.0%).
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 sponsor Mapletree Investments.