Mapletree Logistics Trust - OCBC Research 2015-10-20: Still feeling the strain

Mapletree Logistics Trust - OCBC Research 2015-10-20: Still feeling the strain MAPLETREE LOGISTICS TRUST M44U.SI 

Mapletree Logistics Trust: Still feeling the strain 

 2QFY16 DPU down 1.1% YoY 
 Occupancy improved slightly to 96.9% 
 Tepid operating landscape 

2QFY16 results within expectations 

  • Mapletree Logistics Trust (MLT) reported 2QFY16 gross revenue of S$87.5m, representing YoY growth of 7.3%. This was driven by contribution from acquisitions, coupled with higher revenue from existing assets in Singapore and Hong Kong, but partially offset by lower occupancy at several recently converted multi-tenanted buildings (MTBs). 
  • Despite the improved revenue, DPU fell 1.1% YoY to 1.86 S cents due to a lower NPI margin, higher borrowing costs and a larger unit base. For 1HFY16, gross revenue grew 6.2% to S$172.5m and formed 48.1% of our FY16 forecast. DPU slipped 1.9% to 3.71 S cents and made up 47.7% of our full-year projections. 
  • We judge this set of results to be in-line with our expectations. 

Good progress made on lease renewals, but reversions eased 

  • At the end of 1QFY16, MLT had 22.3% of its leases (by NLA) due to expire in FY16. By 30 Sep this year, only a balance of 5.4% of its leases (by NLA) was due for expiry, underpinned by MLT’s active lease management approach. However, the average rental reversion rate came in at 3%, versus 5% in 1QFY16 and 8% in FY15. 
  • YTD, of the 17 single-user asset (SUA) leases due to expire in FY16, MLT has replaced/renewed 11 SUA leases and converted two SUAs to MTBs. Two more such conversions are expected to take place, while the remaining two SUAs will be undergoing redevelopment and divestment. The conversion exercise is expected to exert pressure on MLT’s occupancy and margins, especially amid the current challenging operating conditions. 
  • MLT’s occupancy stood at 96.9%, as at end-2QFY16, a slight improvement from the 96.6% recorded in 1QFY16. 

Maintain HOLD 

  • Looking ahead, although leasing activities in Asia has remained stable, MLT expects rental reversions to moderate, as its customers continue to be cautious. 
  • Given the muted outlook, we pare our FY16 and FY17 DPU forecasts by 1.9% and 2.5%, respectively, and also ascribe a lower terminal growth rate of 1% (previously 1.5%) in our DDM valuation model. 
  • Consequently, our fair value estimate on MLT dips from S$1.13 to S$1.04. 
  • Maintain HOLD. 

Wong Teck Ching Andy OCBC Securities | http://www.ocbcresearch.com/ 2015-10-20
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.04 Down 1.13