Mapletree Logistics Trust - CIMB Research 2016-12-15: Eliminating negative carry; increasing exposure Down Under

MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Eliminating negative carry; increasing exposure Down Under

MLT has proposed an accretive acquisition of four logistics properties in Victoria, Australia for A$142.2m (S$151.9m) or an initial NPI yield of 7.6%.
These purchases are seemingly in line with MLT’s previous transactions in Australia.
The acquisition will be 40%-funded by A$-debt and 60% from the remaining proceeds of the perpetual securities.
These acquisitions will eliminate the negative carry from the perps.

We maintain Hold with a slightly higher DDM-TP. The acquisitions will help to counterbalance organic weakness, in our view.

MLT has proposed to acquire a portfolio of four logistics properties in Victoria, Australia for A$142.2m (S$151.9m) from a third-party, Growthpoint Properties. This translates to an initial NPI yield of 7.6% vs. FY16 portfolio NPI yield of 5.7%.
The properties are 100% leased with WALE of 6.4 years and annual step-ups. With the acquisitions, MLT will now own nine properties in Australia; and the country will account for 9% of its revenue base (prev. 6.1%).
The acquisitions are expected to be completed within the next few days.

The A$142.2m price tag is in line with independent valuation. These purchases are seemingly in line with MLT’s previous transactions in Australia. Recall that MLT acquired four Sydney properties for an initial NPI yield of 7.1% with WALE of 5.5 years in Aug 16 while it acquired the Coles Chilled Distribution Centre for an NPI yield of 5.6% with a lease term of 19 years in Aug 15.

The acquisitions will be 40%-funded by A$-debt and 60% from the remaining proceeds of the S$250m perpetual securities (perps) issued in May 16 (we estimate around S$89m still remaining). This also means that the negative carry from the perps has been eliminated.
Assuming portfolio cost of debt of 2.3% and cost of perps of 4.2%, we derive a WACC of 3.4% for this acquisition.
Post-acquisition, MLT expects gearing to increase from 37.6% (as at 1HFY17) to 39.4%.

MLT would be adding 103,517 sqm of GFA, which is almost double its existing Australia GFA. It would also add four new tenants: Woolworths (will become MLT’s eight largest tenant post-acquisition), Fuji, Bridgestone and Scott’s Refrigerated Freightways.
The properties are purpose-built with good logistics specifications, including average height clearance of 19m and floor loading of 3t/sqm. Three properties are located in western Melbourne and one property is in the regional city of Wodonga.

On the back of the acquisitions, we raise our FY17-19F DPU by 0.2-3.5%, which nudges up our DDM-TP (to S$1.02).
We maintain Hold on MLT as organic portfolio weakness is counterbalanced by accretive acquisitions and redevelopment projects. The stock is trading at around 1 s.d below mean (7.6% FY18 dividend yield and 1x P/BV), suggesting that the negative headwinds have been priced in.
Upside/downside risks hinge on leasing activities.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-12-15

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