Mapletree Logistics Trust - DBS Research 2018-01-24: Spreading Its Wings

Mapletree Logistics Trust - DBS Vickers 2018-01-24: Spreading Its Wings MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Spreading Its Wings

  • Strong operational results supported by acquisitions.
  • Portfolio vacancy remains resilient despite operational volatility.
  • Significant pipeline available for Mapletree Logistics Trust to acquire.
  • Raising Target Price to S$1.45.



Maintain BUY, Target Price raised to S$1.45. 

  • With the recent completion of Mapletree Logistics Hub Tsing Yi (MLHTY) acquisition, we remain excited on Mapletree Logistics Trust (MLT)’s growth prospects. Coupled with a stronger balance sheet post recapitalisation and a myriad of acquisitions, we believe that that the REIT’s improved earnings prospects will translate to higher valuations going forward. 
  • Our Target Price is raised to S$1.45 to account for new acquisitions. BUY! 


Where we differ: Market is not according MLT the right valuation. 

  • Our Target Price of S$1.45 is above consensus average of S$1.35. We believe that the street has not accounted for the improved fundamentals post acquisition of MLHTY. Based on estimates, the portfolio mix is tilted towards more developed markets (SG, Japan, HK and Australia) which contribute 85% of portfolio value and 82% of portfolio net property income. 
  • 3Q18 results remain stable with organic growth outlook remaining positive for key markets.


More acquisitions in the pipeline. 

  • While FY18F has been an active year for the REIT, we see Mapletree Logistics Trust gearing up more going into 2H18-2019. 
  • Potential acquisitions from third parties or Sponsor in China, Vietnam and Australia are potential opportunities that could be executed upon in the medium term. We have priced in S$200m of acquisitions in our estimates, funded by debt.


Valuation

  • We maintain our BUY call and raise our Target Price to S$1.45. 
  • The stock offers a total potential return of > 10%.


Key Risks to Our View

  • Acquisitions ramping up faster than expected. A faster-thanprojected acquisition pace or a better-than-expected outlook for the Singapore warehouse market will translate to positive adjustments to our earnings estimates.



WHAT’S NEW - Acquisitions momentum to continue 


Stable operational performance. 

  • 3Q18 gross revenues and net property income (NPI) grew by 2.8% and 3.9% to S$98.2m and S$83.0m respectively. This is mainly due to the acquisitions of MLHTY in Hong Kong and four properties in Australia, offset by lower revenues from ongoing redevelopments (Ouluo Logistics in China), a conversion of a multi-tenanted property in Korea and the divestment of three properties completed in 1HFY18.
  • Distributable income to unitholders (after amount distributable to perpetual holders) grew by 24.5% to S$58.3m, DPU grew by a smaller 2.0% to 1.907 Scts on the back of an expanded share base.

Financial metrics remained stable but leverage ratio inches up. 

  • Portfolio cost of debt remained stable at 2.3%.
  • Gearing inched up to 37.8% on the back of acquisition of MLHTY and ongoing asset enhancements and will head towards 39% on the back of the completion of the strata units at Shatin No 3 property in HK. 
  • About 78% of the debt is hedged into fixed rates. 
  • Average debt duration of 4.6 years means minimal refinancing risk for the REIT.

Portfolio performance improving. 

  • Portfolio occupancy rate is improving and hit 96.2% (vs 95.8%) mainly on the back of improving occupancy rates in Korea. We understand that KPPC property has seen good lease-up rate and is reaching > 80%. 
  • Softer occupancy rates in Singapore (93.3% vs 94.8%) was mainly due to completion of the redevelopment of 76 Pioneer which will improve sequentially once the property is leased out in the coming quarters.

Significant acquisition opportunities. 

  • After an active year in growing the portfolio, we note that MLT has a significant pipeline of logistics properties that can be acquired from the Sponsor over time. The manager is keen to continue the strong acquisition momentum going into FY19F and is looking at third-party opportunities as well. 
  • Depending on the ability to close some of these deals, some of which could be sizeable, the manager believes funding could involve equity issuance once again. In our estimates, we have conservatively priced in S$200m in acquisitions, funded by debt.






Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2018-01-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.45 Up 1.380



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