Mapletree Logistics Trust - DBS Research 2016-07-27: Turning around the corner

MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Turning around the corner

We see Mapletree Logistics Trust (MLT) emerging stronger post balance sheet recapitalization and see acquisitions as a catalyst to drive earnings and share price upside. With firepower to execute on strategic purchases, MLT remains on a growth path.
Upgrade to BUY, TP S$1.15.

The issuance of S$250m perpetual securities in May’16 @ 4.18% has enabled MLT to lock in attractive long term funding for the REIT. Since then, MLT has deployed close to S$137.6m into four properties in Australia (c.S$84.4m) and Malaysia (S$53.2m) at yields of c.7.1%-7.5%.
We see more acquisitions in the pipeline and have assumed a further S$100m in our forecasts. We believe that opportunities will come from its Sponsor, and third parties in Australia, Korea, and China. Acquisitions should more than compensate for weaknesses in the various markets that MLT operates in.

Given the strong demand for the recent launch of perpetual securities (S$250m @ 4.18%), we see the potential for MLT to refinance its first tranche of perpetual securities (S$350m @5.375%) to a lower rate. The first callable date will be in Sept’2017.
A 1% drop in coupon will mean S$3.5m in savings (c.1.5% of distributions) which we have not priced into our estimates yet.

We upgrade our call to BUY, and raise our TP to S$1.15 after imputing acquisitions in our forecasts. The stock offers a total return of 17% (10% upside, 7% yield).

Acquisitions ramping up faster than expected. A faster-than-projected acquisition pace or a better-than-expected outlook for the Singapore warehouse market will translate to positive surprises to earnings estimates, and re-rate the stock higher.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-27

DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 1.15 Up 1.10