CIMB Research 2015-07-21: Mapletree Logistics Trust - Acquisitions pave the way. Maintain ADD.

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Acquisitions pave the way 

• MLT’s 1QFY3/16 results were in line with our estimates, with 1Q DPU accounting for 22% of our full-year forecast. 
• As the REIT converts more of its properties from single-tenanted buildings (STBs) to multi-tenanted buildings (MTBs), both margins and occupancy rates are expected to come under pressure. 
• However, we expect MLT to rely on inorganic growth to make up for this potential weakness. 
• Hence, we maintain our Add rating. 
• As we forecast a weaker NPI margin (c.82%) and lower our FY16-18 DPU forecasts by 5.6-5.7%, our DDM-based target price is trimmed to S$1.25 (prev S$1.31). 

1Q16 results in line 

• Mapletree Logistics Trust’s (MLT) 1Q16 results were in line with our expectations, with 1Q revenue accounting for 23% of our full-year forecast and 1Q DPU comprising 22% of our FY16 forecast. 
• Revenue was up 5.0% yoy due to 
  1. additional contribution from assets acquired during the year, and 
  2. positive rental reversions of 5% mainly in Hong Kong and Singapore. 
• However, this was partly offset by lower occupancy rates at the newly-converted MTBs in Singapore, and higher costs associated with the conversions. 

Slight dip in NPI margins expected 

• Among the 17 STBs in MLT’s portfolio due for renewal in FY16, one property has been renewed YTD while another has been converted. 
• Looking ahead, seven assets in Singapore are expected to be converted to MTBs while the rest are expected to be renewed. 
• Consequently, we believe that DPU could be negatively impacted as expenses creep upwards while weakening margins slightly. 
• As such, we have lowered our NPI margin estimate by c.3% to reflect the upcoming conversions in FY16. 
• To mitigate the dip in DPU, we believe that MLT could go for yield-accretive acquisitions. 
• Given the large pipeline of assets (c.2m sq m of GFA) spread across Asia that could be injected into the REIT in the mid- to long-term and the proficiency of MLT’s acquisition team in finding good quality assets from third-party vendors, we believe that MLT will continue to expand through this avenue. 

Maintain Add 

• With its leverage ratio at 34.4%, strong sponsor pipeline and active acquisition team, we believe that MLT is capable of taking on more acquisitions. 
• We keep our Add rating with a lower target price.

(PANG Ti Wee; LOCK Mun Yee; TAN Xuan, CFA)

Source: http://research.itradecimb.com/