Mapletree Logistics Trust - OCBC Investment 2017-08-31: Impressive Execution Continues

Mapletree Logistics Trust - OCBC Investment 2017-08-31: Impressive Execution Continues MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Impressive Execution Continues

  • 5.7% initial NPI yield.
  • Net divestment gains to be distributed.
  • Raise FV and upgrade to BUY.

Proposed Tsing Yi acquisition at attractive yield 

  • Mapletree Logistics Trust (MLT) has entered into a conditional share purchase agreement with its sponsor Mapletree Investments Pte Ltd to acquire Mapletree Logistics Hub Tsing Yi in Hong Kong. 
  • The purchase consideration of ~HK$4.8b (S$834.8m) represents a discount of 2.7% to the average of two independent valuations on the property. 
  • This asset is an 11-storey modern ramp-up warehouse with high quality building specifications and a NLA of 148,065 sqm. It is one of only 14 modern warehouses in Hong Kong and has a committed occupancy of 100%, with tenants including Ever Gain, Adidas and Angliss.
  • The proposed acquisition is expected to contribute an initial NPI cash yield of 5.7%, higher than the average NPI yield of MLT’s existing Hong Kong properties (4.5%) and the ~4% cap rates of warehouses in Hong Kong.
  • Funding is expected to come from a mixture of debt and equity. MLT also expects to redeem S$350m of its existing perpetual securities (callable on 19 Sep 2017), with plans to issue new perpetual securities at a likely lower distribution rate of 4%.

Capital recycling strategy firmly in place 

  • MLT announced earlier this month two proposed divestments. The first is its 4 Toh Tuck Link property at a sale price of S$14.5m. The second is an Option to Purchase granted to its sponsor for its 7 Tai Seng Drive property at a sale consideration of S$68.0m, subject to approval from JTC. This comes in at a significant premium above the acquisition price of S$38.0m in 2006 and valuation of S$31.8m, as at 31 Mar 2017.
  • Management intends to distribute the net divestment gains to its unitholders.

Continues to create value for unitholders 

  • We believe these three transactions, coupled with other recent capital recycling activities, aptly reflect management’s capabilities of generating returns for its unitholders. This strong track record and MLT’s continued astute footprint expansion in overseas markets warrants a further re-rating, in our view. 
  • We incorporate the aforementioned developments in our model and raise our FY18 and FY19 DPU forecasts by 1.5% and 4.9%, respectively. We also lower our cost of equity assumption from 8% to 7.8% and bump up our terminal growth rate input from 1% to 2%. 
  • Consequently, our fair value increases from S$1.15 to S$1.35. Upgrade from Hold to BUY.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-08-31
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.35 Up 1.150