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

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.

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.

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%).

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.

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

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