Mapletree Logistics Trust - CIMB Research 2016-05-03: Take profit on the relative outperformer

MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Take profit on the relative outperformer

FY16 DPU of 7.38 Scts (-1.6% yoy) was slightly below our expectation at 96% of our full-year estimate. 4Q16 DPU of 1.8 Scts (-2.75 yoy) was 23% of our FY16F.
Hong Kong remained positive but Singapore was sluggish.
Renewal rate of 91%, positive rental reversion of 4% in FY16. As at end-FY16, occupancy stood at 96.2%, with a WALE of 4.5 years.

Risks from KPPC in South Korea.
Take profit on relative outperformer. Downgrade MLT to Hold from Add, with a lower DDM-based target price of S$1.02.

In FY16, MLT registered gross revenue of S$349.9m (+6% yoy) and NPI of S$290.9m (+5% yoy). The growth was mainly driven by acquisitions, stronger results from HK (+13% yoy in NPI) and a stronger HK$.
This was partly offset by a softer Singapore (-6% yoy in NPI) due to ongoing MTB reversions, absence of contributions from 5B Toh Guan Road East and 76 Pioneer Road (undergoing redevelopment) as well as the divestment of two assets during the year.

Accordingly, distributable income was 1% lower yoy at S$183.3m due to greater interest costs on higher borrowings to fund acquisitions.
The leverage ratio stood at 39.6% as at end-FY16 (FY15: 34.3%) while all-in borrowing costs rose to 2.3% (FY15: 2.1%).
Additionally, distributable income included partial divestment gains of S$3m, excluding which, underlying DPU was 7.26 Scts.

MLT renewed/replaced 631,000 sq m of leases in FY16 (91% success rate) at an average rental reversion rate of +4% (mainly due to Hong Kong and Singapore).
In 4Q, the portfolio reversion rate was +0.6%, with Hong Kong’s reversion rate moderating to c.+14% (from around +20%) and Singapore at +0.2%.
Portfolio occupancy slipped marginally 0.7% pt qoq to 96.2% due to vacancies at Popular and 30 Tuas South Ave 8 in Singapore, Grandtech Centre in Hong Kong and softness in Wuxi.

14.6% of MLT’s leases by NLA will be expiring in FY17, of which 5.1% are leases for six single-user assets (SUAs) and 9.5% are multi-tenanted buildings (MTBs).
We see some earnings pressure as KPPC is unlikely to renew its lease, which expires in Dec 16. The KPPC facility is MLT’s largest property in South Korea, with NLA of over 100,000 sq m. GRI for the KPPC lease is c.S$8m p.a.
Two small SUA leases in Singapore are also not likely to be renewed (Kim Seng and 4 Toh Tuck).

We cut our FY17-18F DPU by 4-7% on lower revenue and higher interest costs and taxes, leading to a lower DDM-based target price.
Since our sector update “Musical chairs begin” published on 6 Mar 2016, MLT has outperformed AREIT by c.9% and MINT by c.7%.
It is trading at FY17 dividend yield of 6.8% vs. historical average of 6.95%.
We reiterate our strategy of picking stocks on relative performance and downgrade MLT to Hold from Add.
Our top picks are KDCREIT, KREIT and MAGIC.

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-05-03

CIMB Securities SGX Stock Analyst Report HOLD Downgrade ADD 1.02 Down 1.06