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Analysts mixed on Mapletree Industrial Trust’s data centre acquisition in US

Felicia Tan
Felicia Tan • 4 min read
Analysts mixed on Mapletree Industrial Trust’s data centre acquisition in US
CGS-CIMB Research has downgraded the stock to "hold" while Maybank has maintained its "buy" call.
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SINGAPORE (June 24): Analysts are mixed on their outlook for Mapletree Industrial Trust (MIT) following the REIT’s Wednesday announcement that it will be acquiring the remaining 60% interest in data centres in the US at a purchase consideration of US$210.9 million (S$299.5 million).

See: Mapletree Industrial Trust to acquire remaining 60% interest in 14 data centres in US for $299.5 mil

The deal will further expose MIT’s exposure to the more resilient data centre segment, which will enable MIT to future-proof its portfolio for a more digital economy. The acquisition also exposes MIT to the US, the world’s largest data centre market.

CGS-CIMB Research has downgraded the stock to “hold” from “add” with a revised target price of $2.81 from its previous $2.66, on valuations.

CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei say they have raised MIT’s distribution per unit (DPU) estimates by 0.8-2.9% to factor in five months on contributions in FY21F, should the transaction be completed by the end of 3Q20. Lock and Eing have also taken into account MIT’s private placement, which will issue of 128.1 million new units.

See also: Mapletree Industrial Trust launches private placement to raise $350 mil to fund acquisition of data centres, and Mapletree Industrial Trust's private placement over-subscribed, to raise total of $410 mil

“While we like this accretive acquisition, MIT’s share price has appreciated by c.15% since end-Apr and the stock is currently trading at c.4.3% FY21F DPU yield, above its +1 s.d. 7-year yield band,” they write in a note dated June 23.

Maybank Kim Eng analyst Chua Su Tye believes the acquisition should strengthen MIT’s footprint in the US’s top 15 data centre markets.

“We continue to expect strong demand growth for data centre assets globally with rising operational needs,” he says in a Wednesday note.

“COVID-19 has likely accelerated the pace of cloud adoption from the increased usage of remote working, video streaming and online gaming, with higher data traffic needs bolstering leasing demand,” he adds.

As such, Chua has maintained his “buy” call with an unchanged target price of $2.95 for the stock.

“Valuations will continue to be supported by its positive growth fundamentals and more resilient portfolio, as DPU visibility has been further strengthened by its rising hi-tech asset investments and overseas diversification. These and $1.6-2.3 billion in debt headroom, could support other DPU-accretive deals,” he says.

Chua says the brokerage will revise estimates following the deal closure, which is expected to be completed by September this year.

UOB analysts Jonathan Koh and Loke Peihao have also maintained a “buy” on MIT with a higher target price of $3.08, from $2.85 previously based on a 6.0% required rate of return, and 2% terminal growth.

Koh and Loke believe MIT’s exposure to the resilient data centre segment puts it in good stead.

“Cloud providers have reported strong demand for data-centre space. The COVID-19 pandemic has accelerated the pace of cloud adoption due to remote working, video streaming and online gaming. There is strong leasing demand from social media, e-payment and software-as-a-service. These providers are likely to lease (not build), so as to quickly meet customers' demand. Global revenue from cloud computing is expected to grow at CAGR of 14% in 2018-24,” they say in a note dated June 24.

The transaction is also expected to boost MIT’s FY20 DPU by 3.4% to 12.66 cents, and net asset value (NAV) per share by 3.7% to $1.68.

“We cut our FY20 DPU by 5.7% due to MINT’s COVID-19 assistance & relief programme, which is estimated to cost S$20m. We raise our FY21 DPU forecast by 2.5% due to full-year contributions from the acquisition of 60% stake in MRDCT,” they add.

As at 4.42pm, units in Mapletree Industrial Trust (MIT) are changing hands 11 cents higher, or 3.9% up, at $2.95.

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