Mapletree Logistics Trust - UOB Kay Hian 2016-01-26: 4Q15 In Line With Expectations

Mapletree Logistics Trust - UOB Kay Hian 2016-01-26: 4Q15 In Line With Expectations CACHE LOGISTICS TRUST K2LU.SI 

Mapletree Logistics Trust -  4Q15: In Line With Expectations 

 Results in line, maintain BUY. 

  • Results in line; maintain BUY and target of S$1.28, based on DDM (required rate of return: 6.9%, terminal growth: 1.5%). 
  • MLT reported core 3QFY16 DPU of 1.81 S cents (excluding divestment gains), declining 2.2% yoy. 
  • Gross revenue and NPI increased 7.3% and 6.7% respectively, as full contributions from recent acquisitions were slightly mitigated by higher expenses from multi-tenant conversions. 
  • The results were in line with expectations, coming in at 98% of our estimate. 

 Operational highlights. 

  • 3QFY16 saw overall occupancy rate remain stable at 96.9% (2QFY16: 96.9%). Aggregate gearing saw an uptick of 0.2ppt qoq to 39.0% (2QFY16: 38.8%). 
  • Overall financing costs inched 10bp to 2.4% (2QFY16: 2.3%). 
  • About 17% of borrowings are due in FY17. Rental reversion of 5% this quarter improved from 2QFY16’s 3%. 90% of distributable income for FY16 has been hedged into S$ to mitigate forex fluctuations. 

 Well spread-out lease expiry profile, 

  • ...with minimal leases by NLA due in the next quarter (0.7% by NLA) while forward renewals have resulted in approximately 16.9% and 19% of leases by NLA due to expire in FY17 and FY18 respectively. 

 Two-pronged approach in capital recycling and gearing up… 

  • MLT’s gearing of 39% should leave the REIT manager with about S$98m of debt headroom, assuming a comfortable gearing level of 40%. 
  • Management has stated its preference for capital recycling activities through the divestment of lower returning assets (134 Joo Seng and 20 Tampines) so that potential acquisitions can be internally and debt financed as opposed to raising equity. 
  • Net divestment gains of S$8m and S$2m respectively from 20 Tampines Street and 134 Joo Seng will be paid out over eight quarters and four quarters from 3QFY16 respectively.

 …for overseas drive. 

  • MLT currently derives about 64.2% of overall asset value from overseas assets, post the recent completion of overseas acquisitions in Australia, South Korea and Vietnam. 
  • Management intends to continue pursuing growth beyond domestic shores and eventually increase its 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. 

 Gloomy domestic outlook. 

  • Despite rental reversion growth of 5% attributable to Singapore, Hong Kong and China (2QFY16: 3%), management continues to guide for moderate rental reversions. 
  • The resulting downward pressure on NPI margins from expiring single user assets (SUA) amid the bleak outlook in Singapore should be somewhat mitigated as MLT continues along the footpath beyond domestic shores.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-26
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.28 Same 1.28