OCBC Investment Research 2015-07-22: Mapletree Logistics Trust - Acquisitions to mitigate organic pressures. Maintain HOLD.

Mapletree Logistics Trust: Acquisitions to mitigate organic pressures 

  • 1QFY16 DPU down 2.6% YoY. 
  • Positive rental reversions of 5%. 
  • Operating landscape still challenging. 

1QFY16 results within expectations 

  • Mapletree Logistics Trust (MLT) started FY16 on a muted note, recording a 2.6% YoY dip in its 1Q DPU to 1.85 S cents. 
  • This was the second consecutive quarter of YoY DPU fall. 
  • Gross revenue rose 5.0% to S$85.1m due largely to full contribution from six properties acquired during FY15. 
  • 1QFY16 DPU and gross revenue formed 24.5% and 24.2% of our full-year forecasts, respectively, within our expectations. 
  • MLT continued to be impacted by cost pressures associated with ongoing conversions of its single-user assets (SUAs) to multi-tenanted buildings (MTBs). 
  • Portfolio occupancy was relatively stable at 96.6%, while positive rental reversions of 5% were achieved. 

Looking overseas for growth opportunities 

  • Given the headwinds facing MLT in Singapore, management has actively sought inorganic growth opportunities overseas. 
  • It recently completed one acquisition each in South Korea (Jun) and Vietnam (Jul) at initial NPI yields of 8% and 10%, respectively. 
  • Another proposed premium freehold cold store warehouse acquisition in Sydney, Australia, is currently pending completion at a purchase consideration of A$253m (~S$261.5m), or initial NPI yield of 5.6%. 
  • In our view, this acquisition does not appear cheap, but would diversify MLT’s income streams and add stability given the long WALE of 19 years with built in annual escalations. 
  • MLT’s gearing ratio will increase to 38.1% by end FY16, based on our estimates. 
  • We believe this leaves little debt headroom ahead for more significant acquisitions, and MLT would likely have to utilise equity financing for future large scale acquisitions. 

Maintain HOLD 

  • We ease our FY16-FY17F NPI margin assumptions by 0.4-0.7 ppt on account of cost pressures, but raise our DPU forecasts for FY16 and FY17 by 1.5% and 3.6%, respectively, as we input MLT’s recent acquisitions in our model. 
  • However, we also raise our cost of equity assumption slightly from 8.4% to 8.6% given the challenging operating landscape faced by MLT and downside risks from the 17 SUA leases due to expire in FY16. 
  • This causes our fair value estimate to fall marginally from S$1.14 to S$1.13. 
  • Maintain HOLD. 

(Wong Teck Ching Andy)

Source: http://www.ocbcresearch.com/