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.

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 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%).

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).

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.

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