Mapletree Logistics Trust (MLT SP) - Maybank Kim Eng 2017-08-29: Big Steps, Small Gain

Mapletree Logistics Trust (MLT SP) - Maybank Kim Eng 2017-08-29: Big Steps, Small Gain MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust (MLT SP) - Big Steps, Small Gain


Acquires HK asset from sponsor at 5.7% NPI yield 

  • Mapletree Logistics Trust (MLT) announced it has agreed to acquire Mapletree Logistics Hub Tsing Yi in Hong Kong for HKD4.8b (SGD834.8m) from its sponsor. The proposed acquisition, MLT’s largest to-date, has an NPI of 5.7% and is 2.4-3.0% below valuations. 
  • We view the deal positively - it increases AUM and NPI by 15% and 14% respectively, raises HK’s AUM to the largest, and its NPI second behind Singapore. 
  • The DPU lift is just at 1.7%, given the funding structure, with an estimated 1-to-3 debt-to-equity fundraising, together with redemption of MLT’s existing SGD350m, 5.375% Mar 2012 perpetual with issuance of SGD180m new perpetual securities (at 4%). 
  • Our estimates are unchanged, as we await details of the equity fundraising. Stay at HOLD and DDM-based TP of SGD1.20. 
  • Our top sector pick remains the business park-focused AREIT, with its sizeable debt headroom.


Strong asset, compelling valuation 

  • Mapletree Logistics Hub Tsing Yi is an 11-storey ramp-up facility, with GFA of 85.0k sqm (NLA of 148.1k sqm). It was completed in Mar 2016, and is the newest amongst 14 such modern warehouses in HK, where 79% of its warehouses are > 20 years old. 
  • The property has a remaining lease-hold of 46 years, an average WALE of 3 years, and will be 100% occupied by 1 Oct 2017. The agreed valuation implies 5.7% NPI yield, above both MLT’s 4.5% HK valuation cap rate and the 4.0% market cap rate. 
  • Key tenants include Ever Gain (24% of gross revenue), Adidas (18%), Angliss (15%), HKTV and Aramex (both 9%) with the first two to generate 3.0% and 2.2% of MLT’s portfolio gross revenue post-acquisition respectively.


1.7% DPU accretion 

  • The acquisition will be funded by a combination of debt and equity, with the potential equity fund raising to consist of a private placement of new units to institutional/other investors, and/or a renounceable preferential offering of new units to existing unit-holders. 
  • Proceeds will be partially used to redeem the SGD350m, 5.375% Mar 2012 perpetual, with issuance of SGD180m new perpetual securities at an assumed rate of 4.0%
  • While details are yet to be determined, issuing SGD640m in equity (priced at SGD1.15/share) at 3.8% MLT's last close would result in a 1.7% accretion to DPU. 
  • Meanwhile, aggregate leverage would rise to 38% (from 37%).


Change in portfolio profile 

  • As mentioned, the deal increases AUM and NPI by 15% and 14% respectively, and lifts MLT’s portfolio contribution from its HK assets from 21% to 32%, ahead of Singapore at 27%. 
  • Meanwhile, HK’s NPI contribution rises from 17% to 27%. We believe the HK logistics market fundamentals are well-supported by strong demand and limited supply, and should help lift DPUs further in the longer term.


Swing Factors


Upside

  • Earlier-than-expected pick-up in leasing demand for logistics space driving improvement in occupancy.
  • Better-than-anticipated rental reversion trend.
  • Accretive acquisitions.

Downside

  • Prolonged slowdown in economic activity could reduce demand for logistics space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Significant volatility in AUD, JPY, MYR, and KRW could impede hedging efforts and impact DPU estimates.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.




Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-29
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.200 Same 1.200



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