Industrial REITs - Results For MLT (In Line) And Cache (Below)
- Results were in line for Mapletree Logistics Trust (MLT); maintain BUY with an unchanged target price of S$1.20.
- Positive overall rental reversions were registered. Despite sector headwinds, management remains stoically upbeat on portfolio resilience.
- Mapletree Logistics Trust (MLT) and Cache Logistics Trust (Cache) reported their quarterly results.
Results in line; maintain BUY with target price of S$1.20, based on DDM (required rate of return: 6.7%, terminal growth: 1.1%).
- MLT reported 3QFY17 DPU of 1.87 S cents, 0% yoy.
- The quarter saw gross revenue and NPI increase by 7.4% yoy and 5.7% yoy respectively, on the back of increased contributions from its Australia, Vietnam and Korea acquisitions and its Toh Guan asset in Singapore.
- 3QFY17 distributable income increased by a slower 0.8% yoy due to higher distributions to perp holders and borrowing costs. The results were in line with expectations, coming in at 76% of our full-year estimates.
- 3QFY17 overall portfolio rental reversions at +2%, ranging from reversions of 1% in Singapore and Vietnam to +4% in Hong Kong and China. Management has previously alluded to possible negative rental reversions in China, especially in secondary cities like Wuxi.
- Pro-active leasing efforts resulting in well-spread out lease expiry profile, with 5.0% and 17.9% of total leases by NLA expiring in FY17 and FY18 respectively. Of these expiring leases, China accounts for only 0.6% and 5.3% in FY17 and FY18 respectively.
Potential cost savings from refinancing of perpetual security in 2017.
- We note that the callable date for 2012’s issuance of perps (S$350m at 5.375%) is due in Sep 17.
- Against its recent S$250m issuance at 4.18%, refinancing could imply cost savings of S$3.5m for every 1ppt decline for MLT.
- Management seemed stoically upbeat on forward performance, pointing to its diversified portfolio and well-spread lease expiry profile. This is also notwithstanding more manageable SUA expiries (2.9% and 3.3% in FY17 and FY18 respectively). However, management also has acknowledged that a challenging leasing environment continues to place downward pressure on occupancy and rents.
- Leasing renewals at lower tenures (2-3 years) were previously noted by management, likely due to a more tepid outlook.
- Management highlighted target markets Vietnam and Australia to potentially deploy an unutilised S$89m from May’s perp issuance.
- Management has also expressed its willingness to expand its Australian footprint beyond Sydney.
- MLT currently derives about 60.7% of overall asset value from overseas assets.