1QFY15: Results Of Both Mapletree Logistics Trust And Mapletree Industrial Trust In Line With Expectations
- We upgrade MLT to BUY with an unchanged target price of S$1.32 post the 9.2% share price correction from the peak this April.
- Management is looking overseas for growth with Japan and South Korea as possible target markets as the outlook in Singapore remains bleak.
- Maintain HOLD on MINT with an unchanged target price of S$1.66.
- The moderation in rentals and substantial lease expiries due would cap upside from backfilling.
- Maintain MARKET WEIGHT.
WHAT’S NEW
• Mapletree Logistics Trust (MLT) and Mapletree Industrial Trust (MINT) reported their quarterly results.
ACTION
Mapletree Logistics Trust (MLT SP/BUY/S$1.15/Target: S$1.32)
• Results in line.
- Mapletree Logistics (MLT) reported a 1QFY15/16 DPU of 1.85 S cents, down 2.6% yoy, in line with our expectations with 1QFY15 DPU at 24.2% of full-year estimates.
- Overall occupancy rate of 99.3% dipped 10bp qoq due to a decline of 1.7ppt in occupancy within Malaysia (96.6%).
- Overall financing costs inched up slightly at 2.2% (2.1% last quarter) with gearing at 34.4%.
- 80% of total borrowings have been fixed to mitigate interest rate volatility.
- About 4% of borrowings are due this financial year.
• Looking overseas for growth.
- MLT derives about 61.5% of its value from overseas assets.
- In the last quarter, three overseas acquisitions were announced at a total purchase consideration of S$303.7m.
- Management intends to continue pursuing growth beyond domestic shores and eventually increase overseas exposure to 75%.
- Management also highlighted target markets such as Japan and South Korea, pointing out strong demand for leasing space in the lead up to the Olympics in Japan and thirst for Grade-A warehousing among South Korea’s retailers.
• Capital recycling to prop up debt headroom after factoring in completed acquisitions.
- MLT’s gearing currently stands at 34.4%, which should hit 38.2% after the completion of acquisitions in Australia, South Korea, and Vietnam, all of which are fully debt-funded.
- We believe that this should leave MLT with approximately S$151.3m of debt headroom, assuming gearing at 40%.
- Management will continue capital recycling activities through divestment of non-performing assets so that potential acquisitions can be internally and debt financed as opposed to raising equity.
• Gloomy domestic outlook.
- Of the nine single-user asset expiries in Singapore, only two have been forward renewed, with the remaining slated for MTB conversion or redevelopment.
- These account for about 5% by NLA of leases expiring in FY15. The resulting downward pressure on NPI margins from bleak outlook in Singapore should be somewhat mitigated as MLT continues along the footpath beyond domestic shores.
- 1Q15 JTC figures supported the case for an occupier’s market as vacancy rates crept up 1.8ppt qoq and 1.1ppt yoy to hit 10.0% in 1Q15.
• Upgrade to BUY
- Upgrade to BUY with an unchanged target price of S$1.32 post the 9.2% share price correction from the peak, based on DDM (required rate of return: 6.9%, terminal growth: 1.5%).
Mapletree Industrial Trust (MINT SP/HOLD/S$1.56/Target: S$1.66)
• 1QFY15/16 DPU was up 8.7% yoy, mainly due to higher rental rates for new and renewed leases.
- Full quarter contributions of the built-to-suit (BTS) project for Equinix also contributed to DPU growth.
- Portfolio occupancy saw a marked improvement of 3.3ppt qoq, reaching 93.5% in the quarter.
- Gearing retreated 0.6 ppt to hit 30.0% in the quarter, while 88% of borrowing has been hedged against interest rate risk.
- No refinancing is required this financial year (13.3% of borrowings are due the following year).
- Tenant retention rate stood at 61.5%.
• Limited upside from backfilling.
- About 9.8% of leases by gross rental income are due for renewal in the current financial year, with a further 23.5% due the following year.
- Within the flatted factory space (about half will expire this year), new and renewal rents are 7-14% over passing rents.
- However, the stack-up/ramp-up factory space has seen renewal rents 11.3% below passing rents.
• Development project for Hewlett Packard underway.
- MIT’s BTS development for Hewlett Packard (824,500 sf by GFA) should see fruition in Phases 1 and 2, come 2H16 and 1H17 respectively.
- HP has undertaken to fully occupy the facility for 10.5 years. This takes into account the rent-free period of six months.
• Acquisitions to drive growth.
- Management expects to see softening in the flatted factory space, with muted rental growth due to the increased supply.
- With a low gearing of 30%, our estimated debt headroom of S$577m implies management will likely focus on inorganic growth centred around acquisitions.
• Bleak outlook in Singapore.
- According to data from the URA, median rents in the multiple-user space slid 4.1% yoy to hit S$1.90 psf pm in 2Q15, while median business park rentals inched up 0.2% yoy to reach S$4.17 psf pm in 2Q15.
- 1Q15 JTC figures supported the case for an occupier’s market as vacancy rates crept up 1.8 ppt qoq and 1.1 ppt yoy to hit 10.0% in 1Q15.
• Maintain HOLD with an unchanged target of S$1.66.
- Our target price is based on DDM (required rate of return: 6.9%, terminal growth: 1.5%).
- Entry price is at S$1.40.
PEER COMPARISON
(Vikrant Pandey, Derek Chang)
Source: http://research.uobkayhian.com/
