Mapletree Logistics Trust - CIMB Research 2017-10-24: 2QFY3/18 Stable Performance Augmented By Acquisitions

Mapletree Logistics Trust - CIMB Research 2017-10-24: 2QFY3/18: Stable Performance Augmented By Acquisitions MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - 2QFY3/18: Stable Performance Augmented By Acquisitions

  • Mapletree Logistics Trust (MLT)'s 1HFY3/18 DPU of 3.774 Scts (+1.7% yoy) was broadly in line with consensus and our expectation, at 48% of our FY18F. 2QFY18 DPU of 1.887 Scts was at 24%.
  • The platform has stabilised, with the bulk of conversions of SUAs to MTBs in Singapore completed. That said, we expect pricing to remain competitive.
  • We believe that the REIT could look at third-party assets in the next 12 months; it would also continue capital recycling.
  • Factoring in potential distribution of the divestment gains from 7 Tai Seng, we forecast FY19F yield of 6.6%, which is slightly under MLT’s past 5-year average.
  • Maintain Hold. Our DDM-based Target Price rises (to S$1.21) as we assume COE of 8.5% (prev 8.9%).

2QFY3/18: stable performance augmented by acquisitions 

  • 2QFY3/18 DPU rose 1.5% yoy to 1.887 Scts. 2QFY3/18 revenue/NPI grew 2.3% yoy/2.5% yoy thanks to stable performance across all markets, augmented by acquisitions in FY17. These were partially offset by three divestments and redevelopment in Ouluo Logistics Centre, China. 
  • In line with the equity fund raising on 13 Sep 2017, the manager will pay an advanced DPU of 1.706 Scts from 01 Jul 2017 to 21 Sep 2017; balance DPU of 0.181 Scts from 22 Sep 2017 to 30 Sep 2017.

Slight increase in occupancy and rental reversion 

  • MLT successfully renewed/replaced 76.6k sqm of leases in the quarter, representing a success rate of 92%. Portfolio occupancy improved by 3bp qoq to 95.8% due to higher occupancies in Singapore (+2bp), Australia (+180bp), South Korea (+110bp), China (+4bp) and Vietnam (+7bp). 
  • The REIT achieved a weighted average portfolio rental reversion of +1.4% during the quarter, driven by Singapore (+0.4%), Hong Kong (+3%) and China (+2%).

Minimal SUA expiries over the next 18 months 

  • We think the portfolio has stabilised with most of the conversions of SUAs (single-user assets) to MTBs (multi-tenanted buildings) in Singapore completed. Pre-commitment for 76 Pioneer Road is c.25%, with the manager aiming to achieve 50% by end-2017 and full occupancy by end-2018. Occupancy for the Pyeongtake property is c.50% and rental strategy for that property will now be more focused. 
  • For the rest of FY18, 9.4% of MLT's leases (by NLA) are due for renewal, of which, 1.8% are SUAs, and 7.6% for MTBs.

Gearing is expected to rise to 38% 

  • As at end-2QFY3/18, gearing stood at 33.7% (1QFY18: 39%). Post-completion of Mapletree Logistics Hub Tsing Yi (completed in 12 Oct 2017), MLT's gearing is expected to rise to c.38%. 
  • We also note that the REIT partially financed the redemption of the S$350m 5.375% perpetual securities (perps) in Sep with issuance of a 3.65% S$180m perps (below our 4% assumption). 
  • All-in borrowing costs were stable at 2.3% p.a. and MLT extended weighted average debt maturity to 4.7 years from 4.0 years in 1QFY18.

Hold for potential divestment gains 

  • After the acquisition of Tsing Yi, we believe that MLT would look at third-party assets in the next 12 months. After which, sponsor’s assets in China, Vietnam and Malaysia may be ready for acquisition. MLT would also continue with capital recycling. 
  • We also factor in potential distribution of divestment gains for 7 Tai Seng (S$21.3m over eight quarters from 1QFY19 onwards), i.e. investors would enjoy FY19F yield of 6.6%, slightly below past 5-year average of 6.8%. 
  • Up/downside risk is firmly on the macros – rate outlook.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-10-24
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.21 Up 1.130