Mapletree Logistics Trust - CIMB Research 2016-07-26: Turning the corner

MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Turning the corner

1QFY17 DPU of 1.85 Scts (flat yoy) in line at 25% of our FY17 forecast and with consensus, on contributions from acquisitions and organic growth in HK and Japan.
Registered weighted rental reversion of -6%. We do not expect negative rental reversions in the coming quarters with MLT biting the bullet on Pyeongtaek Port.
Two-accretive acquisitions to contribute in 2HFY17 and help offset organic weakness. We see further scope for acquisitions

MLT is turning the corner but that have been somewhat priced in. Hold maintained.

Underpinned by contributions from acquisitions, organic growth from Hong Kong and Japan, revenue increased 5% yoy and NPI rose 6% yoy in 1QFY17.
Overall growth was partly offset by lower contribution from Singapore, due to conversions of single-user assets (SUAs) to multi-tenanted buildings (MTBs) and loss of 76 Pioneer Road (undergoing redevelopment).
After accounting for higher borrowing costs from incremental borrowings to fund acquisitions, distributable income was flat yoy.

Portfolio occupancy slipped 0.8% pt qoq to 95.4%, with the trust renewing/replacing 98% of leases expiring in the quarter.
With the exception of South Korea, MLT achieved positive rent reversions of 1-11% across the various counties.
E-Land, anchor tenant of Pyeongtaek Port (f.k.a KPPC) has extended its lease till end-2016. But MLT registered a c.-20% rental reversion from the lease as rates were marked to market. The Manager is in talks with a few parties to take up the space when E-Land vacates at year-end.

During 1QFY17, MLT announced two acquisitions for c.S$138m – a portfolio of four properties in Sydney, Australia (NPI yield of 7.1% at purchase price of S$84.4m and Mapletree Shah Alam Logistics Park in Malaysia (NPI yield of 7.5% at purchase price of S$53.2m.
The two acquisitions are expected to be completed in Sep 16 and Nov 16 respectively, and would help to offset some of the organic weakness.

MLT raised S$250m 4.18% perpetual securities in May 16. Proceeds would be used to fund the above acquisitions. In the interim, the proceeds were used to pare down borrowings. Consequently, gearing was reduced to 35.7% (FY16: 39.6%).
Gearing is expected to increase to 37.4% upon the completion of the two acquisitions.
With the remaining proceeds, we expect MLT to continue its acquisition trail (targets in Australia and Vietnam which are valued at acquisition yields of 7-7.5%).

With Singapore at the tail-end of MTB conversions and the worst has passed from a rental reversion standpoint, we view that MLT is turning the corner. Downside risk for FY17 could come from frictional vacancies at Pyeongtaek.
On balance, the market has somewhat priced in the gradual improvement in outlook, with the stock trading close to its mean.
We maintain Hold on MLT with a slightly higher DDM-based target price (S$1.04).
We raise our FY17 DPS by 0.4% and decrease FY18-19 DPS by c.2% due to the negative carry from the perps.
Upside risk could come from further accretive-acquisitions.

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-07-26

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