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

Mapletree Logistics Trust (MLT SP) - DBS Vickers 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.

What’s New

  • 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.

Our thoughts 

Valuation paid implies a potential yield of close to 4%; potential NAV upside. 

  • 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.

Value-add potential to Shatin 3. 

  • 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.

Acquisition upside not factored into estimates in at this juncture; upside in TP if acquisition momentum continues.

  • 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