Mapletree Logistics Trust (MLT SP) - DBS Research 2018-01-08: Gains A Firmer Foothold In Hong Kong

MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust (MLT SP) - Gains A Firmer Foothold In Hong Kong

Acquires remaining 38% stake in Shatin No. 3, a stratatitled logistics warehouse in Hong Kong for HK$610m (S$103.7m).
Rare opportunity to gain a further foothold in Hong Kong; acquisition presents MLT with opportunity to add value through asset enhancement.
Forecast unchanged at this juncture. (Rating: BUY. Target Price: S$1.38)
Upside to TP and estimates on further acquisitions.

Mapletree Logistics Trust (MLT) announced the purchase of the remaining 38% stake in Shatin No. 3, a strata-titled logistics warehouse in Hong Kong for HK$610m (S$103.7m).
Price paid is a slight discount to the independent valuation of HK$ 615m as at 31 Dec 2017 by CBRE.
Given the relatively small size of the deal, the purchase of the property is likely to be debt funded.
The property will be purchased with vacant possession except for one floor which will be leased back to the vendor on a short tenure.

Based on our estimates, the price paid for the property implies an initial yield of close to 4%, in line with recent market transactions.
More interestingly, we estimate that the price paid by MLT for the 38% share in Shatin No. 3 implies HK$4,613 psf, which is close to 30% higher than the valuation in its balance sheet of the existing 62% stake in Shatin No 3 (HK3,572psf as at Mar’17). This means that there is upside to valuations and NAV in the upcoming results in Mar’18. This somewhat justifies the current 1.3x P/NAV multiple that MLT current trades at.

In the tightly held HK logistics market, the Manager of Mapletree Logistics Trust (MLT) believes this is a rare opportunity to gain full control of a strata-titled asset and thus having flexibility to add value through executing on a potential asset enhancement initiative to raise the property’s attributes in order to raise yields and attract higher value tenants.
This acquisition allows MLT to potentially boost the property’s capital value further in the medium term.

We have not factored in any further acquisitions in our estimates post recent completion of Mapletree Tsingyi.
Gearing is unlikely to change much at c.39% post deal.

Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2018-01-08

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.380 Same 1.380