Mapletree Logistics Trust (MLT SP) - Maybank Kim Eng 2017-07-25: Stabilising Conversions, Overseas Recovery

Mapletree Logistics Trust (MLT SP) - Maybank Kim Eng 2017-07-25: Stabilising Conversions, Overseas Recovery MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust (MLT SP) - Stabilising Conversions, Overseas Recovery


Diversification strength, 1Q18 results in line 

  • MLT reported 1Q18 DPU of SGD1.89cts, up 2.0% YoY and 1.5% QoQ, driven by stabilising asset conversions in Singapore, a stronger performance in Hong Kong (revenue/NPI up 5.7%/6.1% YoY) and contributions from FY17 acquisitions, which helped mitigate transitional downtime at a S. Korean property. 
  • We have revised our estimates to factor in stabilising NPI margins and recent divestments in Japan. Acquisitions should continue to drive longer-term upside for MLT, while potential interest savings from a perpetual refinancing initiative could add 1-2% upside to our FY18-20E DPU forecasts. 
  • For now, we maintain HOLD and our SGD1.20 Target Price, and prefer AREIT (BUY, TP SGD2.90) for its business parks exposure.


Expansionary activities in HK, Vietnam and Australia 

  • The improved performance in 1Q18 was led by Singapore and Hong Kong – the former has witnessed a stabilisation in its converted single-user assets (SUAs) – and accretive acquisitions completed during FYMar-17 in Australia, Malaysia, and Vietnam. These partly offset a weakness in S.Korea, from an SUA-to-multi-tenanted building (MTB) conversion, which pulled down portfolio occupancy to 95.5% (from 96.3% in 4Q17). 
  • MLT achieved +6% rental reversion, mainly driven by its assets in Hong Kong (+7%), China (+15%), Japan (+4%) and Vietnam (+4%), with management seeing improving demand in Hong Kong, Vietnam and Australia.


Sound capital mgt, redevelopment tracking well 

  • Aggregate leverage rose QoQ to 39.0% (from 38.5%) with borrowing cost stable at 2.3%. MLT has refinanced all of its FY18 debt requirements with SGD106m in foreign currency loans extended by 5.75 years, and hedged 79% of its total debt into fixed rates and 70% of FY18 income into SGD.
  • Management is seeing healthy enquiries for the redevelopment project at 76 Pioneer Road, which is targeted for completion in 3Q18.
  • Meanwhile, the SGD2.9m gains from divestment proceeds in Japan are expected to be distributed over six quarters from 2Q18. 
  • Acquisitions should stay in focus for MLT, with management continuing to eye third-party assets in Australia and S. Korea, and from its sponsor in Hong Kong.


DPU upside from interest savings 

  • We fine-tuned our estimates, and expect NPI margins to stabilise during FY18-19E, even as our forecasts have stayed largely intact. 
  • We see scope for MLT to realise interest savings from refinancing of its SGD350m perpetual securities as it approaches the first call date in Sep 2017. By our estimates, a 1% decline in the 5.375% coupon implies SGD3.5m in cost savings, and a 1-2% upside to our FY18-20E DPU forecasts. HOLD.


Swing Factors


Upside

  • Earlier-than-expected pick-up in leasing demand for logistics space driving improvement in occupancy.
  • Better-than-anticipated rental reversion trend.
  • Accretive acquisitions.

Downside

  • Prolonged slowdown in economic activity could reduce demand for logistics space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Significant volatility in AUD, JPY, MYR, and KRW could impede hedging efforts and impact DPU estimates.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.




Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-07-25
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.200 Same 1.200



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