Mapletree Logistics Trust - CIMB Research 2016-10-25: Navigating through the headwinds

Mapletree Logistics Trust - CIMB Research 2016-10-25: Navigating through the headwinds MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Navigating through the headwinds

  • 1HFY17 DPU of 3.71 Scts (flat yoy) was in line with our and consensus expectations, forming 50% of our FY17F. 2QFY17 DPU was at 25%.
  • Portfolio occupancy rose 1% pt to 96.4% in 2QFY17. Achieved positive rental reversion of 2%, contributed by SGP, HK and S Korea.
  • Completed S$161m of acquisitions in Australia, Malaysia and Vietnam. These would contribute in 2HFY16. Acquisitions to counterbalance organic weakness.
  • Maintain Hold with a slightly lower DDM-target price.

Stable 2QFY17: achieved DPU of 1.86 Scts (flat yoy) 

  • 2QFY17 revenue and NPI both improved 5% yoy due to contributions from acquisitions and organic growth from the completed redevelopment Mapletree Logistics Hub – Toh Guan in SGP and extension building at Moriya Centre in Japan. These drivers helped to offset the -20% rental reversion for the KPPC lease in S Korea in the prior quarter. 
  • The Manager noted that DPU would have been 1.90 Scts if acquisitions were done hand in hand with the perpetuals. Instead, due to the negative carry, MLT achieved a flat DPU.

Portfolio performance 

  • Portfolio occupancy improved 1% pt to 96.4% due to higher occupancies in SGP (93.2%), HK (99.3%), China (96.5%) and Malaysia (98.6%), partially offset by lower occupancy in S Korea (98.7%). To date, Toh Guan has achieved a committed occupancy of 92% vs. 22% in 4QFY15. 
  • Rental rates for leases renewed/replaced in the quarter achieved an average positive rent reversion of c.2%, contributed mainly by SGP (+3%), HK (+4%) and S Korea (+6%).

Manager guides for challenging leasing environment 

  • A balance of 10.1% of leases by NLA (c.340.3k sqm) is to be renewed in 2HFY17 vs. 31% at the start of the year. 
  • The Manager guides for a challenging leasing environment, especially in China where it is increasingly becoming a two-speed market (differing dynamics in tier 1 vs. tier 2 cities). 
  • In Korea, the Manager has targeted potential tenants to take up c.50-80% of Pyeongtaek Port when E-Land vacates at year-end. 
  • In Singapore, the trust faces difficulties in renewing two single-user assets (SUAs).

Acquisitions in 1HFY17 to contribute in 2H 

  • The Manager completed S$161m of acquisitions in Australia (initial NPI yield of 7.1% at purchase price of S$87.4m), Malaysia (7.5% at S$52.8m) and Vietnam (9.9% at S$20.6m) in the quarter. The acquisitions were funded by the S$250m perps and would help to mitigate the impact of the challenging leasing environment. 
  • We sense that the Manager could further scale up in Australia and expand outside of Sydney. 
  • Also, the REIT would work on capital recycling of its older assets.

Acquisitions to counterbalance organic weakness; maintain Hold 

  • We trim our FY18-19F DPU by 1.4-1.5% to factor in slight negative rental reversions as well as frictional vacancies (i.e. expect some fit-out periods when new tenants move into Pyeongtaek Port) which is counterbalanced by acquisitions and redevelopment projects (Toh Guan and 76 Pioneer Road). 
  • So, we keep our Hold call with a slightly lower DDM-based target price (S$1.03). 
  • Upside risk may come from further acquisitions as MLT still has unutilised S$90m from the S$250m 4.18% perpetual securities issued in May

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-10-25
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.03 Down 1.040