MIT proposes US$1.32b acquisition of 29 data centres in the US

MAPLETREE Industrial Trust's (MIT) manager on Thursday proposed a US$1.32 billion acquisition of 29 data centres in the US. The trust also announced an equity fundraising exercise to raise S$800 million through a private placement and preferential offering.

The proposed acquisition is expected to make MIT one of the largest owners of data centres among real estate investment trusts (Reits) listed in the Asia-Pacific. MIT will also have a presence in 13 out of the top 15 data centre markets in North America, the manager said in a bourse filing.

Data centres will comprise 53.6 per cent of the Reit's portfolio, up from 41.2 per cent pre-acquisition. MIT's assets under management (AUM) will increase to S$8.6 billion from S$6.8 billion as at March 31, with data centres rising to S$4.6 billion from S$2.8 billion. 

The manager expects the proposed acquisition to be distribution per unit (DPU) and net asset value per unit (NAV) accretive to unitholders. 

Based on pro forma estimates, assuming the proposed acquisition was completed on March 31, it would boost DPU by 3.3 per cent to 12.97 Singapore cents. NAV would rise to S$1.76 per unit from S$1.66.

The move is in line with the Reit's target for data centres to comprise up to two-thirds of its total portfolio, the manager noted. 

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“With its portfolio recalibration plans well underway, we see further DPU-accretive deals, as management advances diversification efforts to deepen data centre concentration to 50-67 per cent of AUM,” Maybank Kim Eng analyst Chua Su Tye said in a research note. 

MIT on Thursday announced a purchase and sale agreement with certain subsidiaries of Sila Realty Trust to acquire the latter's portfolio of data centres.

Sila Realty Trust is a public, non-traded Reit headquartered in Tampa, Florida that owns healthcare properties and data centres. The deal is a bid on Sila Realty Trust's part to become a pure-play healthcare Reit, it said in a separate statement on Wednesday. As at March 31, Sila Realty Trust owns 153 real estate properties: 29 data centres and 124 healthcare properties in the United States.

The portfolio of 29 data centres has a total net lettable area of about 3.3 million square feet and is predominantly on freehold land. If the proposed acquisition is completed, freehold properties will increase to 65.8 per cent of MIT’s enlarged portfolio by land area -- from 55.9 per cent as at March 31.

The portfolio is also 87.8 per cent leased to 32 tenants, including "Fortune Global 500 corporations, NYSE or Nasdaq-listed companies and multinational companies with investment grade ratings", MIT's manager said.

It has a weighted average lease expiry of 7.9 years, with 1.7 per cent of leases expiring within the next three financial years. Around 89.4 per cent of the leases have annual rental escalations from 1.5 to 3 per cent. They are also primarily on triple net leases with all outgoings borne by the tenants.

One of the 29 properties is encumbered by an existing tenant's purchase rights. If said tenant chooses to exercise the right to purchase, MIT's manager expects the purchase consideration to be reduced by about US$100 million.

The proposed deal increases the geographical diversification of MIT's data centre footprint. It will also help the Reit gain exposure to new established markets in Chicago, Los Angeles and Houston.

The manager expects the total acquisition cost to be about US$1.35 billion, including fees and expenses of about US$25.1 million, which it plans to finance through proceeds from the equity fundraising as well as debt.

MIT is issuing 190.3 million new units at a price of between S$2.628 and S$2.696 apiece to raise about S$500 million in a private placement. 

This represents a discount of between 2.3 per cent and 4.8 per cent to the volume-weighted average price (VWAP) of S$2.7596 per unit of all trades done on Wednesday, up to the time the underwriting agreement was signed on Thursday.

The offer of new units under the private placement will be made to eligible institutional, accredited and other investors. 

The Reit's proposed non-renounceable preferential offering, which will raise at least S$300 million, will be for 117.6 million new units at an issue price range of between S$2.57 and S$2.64. This translates to a discount of about 4.3 per cent and 6.9 per cent to the VWAP of S$2.7596 per unit.

The allotment ratio is five new units for every 100 existing units. Fractional entitlements will be disregarded, the manager said. 

About 90.5 per cent or S$726.5 million of the gross proceeds from the equity fundraising will be used to partially finance the total acquisition cost. About S$62.2 million or 7.7 per cent will be used to repay MIT's debt, and the remainder will be utilised to pay fees and expenses incurred from the fundraising exercise. 

If the gross proceeds exceed S$803 million, the excess will be used to fund future acquisition or for general corporate and working capital purposes, the manager said. 

DBS, OCBC, Merrill Lynch (Singapore) and UBS's Singapore branch have been appointed the joint global coordinators and bookrunners for the equity fundraising.

The manager expects the proposed acquisition to complete in the third quarter of 2021. It called for a trading halt on Thursday before the market opened. The counter last closed flat at S$2.76 on Wednesday.