Mapletree Industrial Trust (SGX: ME8U), or MIT, has performed better than most in 2020.
The industrial REIT has a strong sponsor in Mapletree Investments Pte Ltd, a unit of Temasek Holdings and reported a resilient set of numbers for its fiscal year 2021 (FY2021) ended 31 March 2021.
Gross revenue was up 10.2% year on year to S$447.2 million while distribution per unit (DPU) inched up 2.5% year on year to S$0.1255.
This strong performance can be attributed to the consolidation of revenue from the acquisition of 14 data centres in the US back in June last year.
Now, the REIT has stepped up its data centre presence with its latest acquisition.
Last week, MIT announced that it will acquire 29 data centres across 18 states in the US for a total purchase price of US$1.32 billion.
Once this acquisition is concluded, the REIT will achieve a new milestone — data centres will make up more than half its assets under management as of 31 March 2021.
Here are five other highlights investors should know about this major transaction.
Increases exposure to a growing asset class
As mentioned, MIT’s data centre exposure will rise from 41.2% to 53.6% after the acquisition is concluded.
According to the REIT, data centres will enjoy strong secular growth tailwinds as COVID-19 is spurring increased digitalisation.
Global leased data centre market revenue is expected to rise by 9.2% per annum between 2019 and 2025.
This increase will be anchored by existing industries such as e-commerce, cloud computing and online gaming.
New trends such as the rollout of 5G, autonomous vehicles and artificial intelligence were also cited as having significant future potential.
Together, these industries will power the increased usage of data and drive data centre demand higher in the years to come.
Enhances the REIT’s income stability
This acquisition has attributes that will improve the REIT’s income stability.
The data centre portfolio has a weighted average lease expiry (WALE) of 7.9 years by gross rental income (GRI) as of 1 June 2021.
Just 1.7% of GRI will expire in the next three financial years, providing significant income stability to the portfolio.
The addition of the 29 data centres also helps to increase MIT’s portfolio WALE from four years to 4.6 years.
Another positive is the further diversification of MIT’s tenant base.
Meanwhile, the REIT’s GRI from the top 10 tenants will fall from 33.3% to 30.6% post-acquisition. The top two contributors, Hewlett Packard (NYSE: HPQ) and AT&T (NYSE: T), will see their GRI reduced to 6.1% and 5.4% of the total pie, respectively.
Before the acquisition, these two blue-chip companies contributed 7.3% and 6.4% to GRI, respectively.
Optionality for further growth
Close to 90% of the data centre leases have built-in rental escalation clauses of between 1.5% to 3%.
The inclusion of these clauses allows the portfolio to enjoy steady organic rental growth.
Furthermore, one of the assets, 250 Williams Street in Atlanta, currently has 30.2% of its portfolio’s net lettable area classified as 50% data centres, 50% commercial.
With strong expected demand for data centres in the state, the conversion of the commerical area to data centres provides the REIT with additional upside potential.
An increase in DPU and NAV
The acquisition is expected to lead to an increase of 3.3% in DPU for unitholders to S$0.01297.
At the same time, MIT’s net asset value (NAV) will also rise 6% from S$1.66 to S$1.76.
Massive fund-raising exercise
The REIT manager has undertaken a massive fund-raising exercise to partially finance this acquisition.
Only 60% of the total purchase price will be funded by debt, while the remaining 40% will be funded by both a private placement and a preferential offering of shares.
The private placement’s issue price was S$2.696 per unit, a slight 2.3% discount to the volume-weighted average price (VWAP) of S$2.7596. A total of 190.3 million new units will be issued.
The preferential offer price was fixed at S$2.65 per unit for a ratio of five new units for every 100 owned.
Another 117.6 million units will be issued under the preferential offer.
Total issued units for MIT will increase by 307.9 million units.
Investors should note that the REIT’s gearing level will jump from 36% to 40.3% post-acquisition.
However, this level is still below the 50% threshold set by the Monetary Authority of Singapore.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
