Mapletree Industrial Trust - 29 NA DCs Acquisition
Mapletree Industrial Trust (MINT, SGX:ME8U) announced a proposed acquisition of 29 Data Centres (DCs), situated in North America.
Incoming Assets
Out of the 29 proposed properties, one of them might not be included in the final acquisition, due to an existing tenant's Purchase Rights (think ROFR).
Only 2 of the 29 properties are on leasehold land, with the remaining 27 properties being on freehold land.
25 of the 29 properties have 100% occupancy as at 1 June 2021, with 2 more in the 90-95% occupancy range and the last 2 at roughly 63.5% occupancy. This brings total occupancy rate to 87.8%, dragged down by 250 Williams Street, which has a high NLA but low occupancy rate.
19 of the 29 properties (63.9% by GRI) are powered shell DCs, which require minimal outgoing expenditure requirements. Along with that, the incoming leases are predominantly (81.7%) triple-net leases, meaning further helps to minimize costs to MINT.
On top of the triple-net leases, 89.4% of leases have annual rental escalations of 1.5% to 3%, presenting a stable upside/organic growth profile.
> Special Note: 250 Williams Street
As mentioned previously, 250 Williams Street, with a high NLA, has a low occupancy rate of 63.5%. This was attributed to a recent office lease termination. The Manager sees further upside here as the DC/commercial space allocation can be revised upwards from the current 50%, allowing the property to better benefit from strong DC demand.
Changes to Asset Mix
If the deal goes through, DCs will now take up the majority of the portfolio, up from S$2.8B (41.2%) to S$4.6B (53.5%). This brings it much closer to the Manager's two-third DC AUM target.
Apart from changing to a predominantly DC portfolio mix, geographically North America will take up 48.6% of MINT's portfolio.
This makes MINT basically a 50-50 hybrid play for DC/Industrial, and for SG/NA.
Financing and Effects
The roughly S$1.8 billion in acquisition costs will be partially funded by debt (60%) and equity (40%). This chalks up to roughly S$800 million from equity, which will be split into Private Placement and Preferential Offerings.
Post acquisition, gearing would increase from 36.0% to 40.3%, bringing it closer to the 45/50% regulatory limit for REITs. DPU would increase 3.3% to 12.97c, and NAV would increase from 1.66 to 1.76.
At the current unit price of $2.76, this puts dividend yield at 4.7% and P/B ratio at 1.57.
Preferential Offering Details
Unitholders would be entitled to 5 units for every 100 existing units, at a indicative price range of $2.57 to $2.64.
The PO window opens on 3rd June, 9am, and closes on 11 June, 5pm.
Record Date for advanced (clean-up) distribution will be on 31st May, with a distribution amount of roughly 2.11c to 2.31c.
My Thoughts
Overall I'm quite pleased with the move. On top of being DPU and NAV accretive, the leases are quite defensive with stability largely baked in. It also moves the portfolio more toward a DC focus, which could potentially cause the market to rerate it and give it a NAV premium closer to that of KDC.
As a side note, a reader pointed out that the cap rate for this acquisition is rather low, which is definitely not a great thing. He also pointed out that the DPU projection was done with exchange rate of $1.35SGD/USD, which may very well fall in the near future. As to whether the pros outweighs the cons here, I'll leave it to you to decide.
Having said that, I might not be participating in the PO, due to limited cash, along with the fact that MINT is already my highest weighted counter by far (~25% of portfolio cost).
Cheers,
InvestingNugget
