Mapletree Logistics Trust - CIMB Research 2018-04-30: 4QFY18 Good Showing; Acquiring 50% Interest In 11 Logistics Properties In China

MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - 4QFY18: Good Showing; Acquiring 50% Interest In 11 Logistics Properties In China

Mapletree Logistics Trust (MLT) FY18 DPU of 7.618 Scts (+2.4% y-o-y) was in line with our and consensus expectations at 100% of our full-year forecast. 4QFY18 DPU of 1.937 Scts was 26%.
Operating performance was good, with portfolio occupancy improving 40bp q-o-q to 96.6%; MLT recorded +2.6% rental reversion for FY18. NAV increased to S$1.10/unit.
MLT has also proposed the acquisition of a 50% stake in 11 properties in China from its sponsor for c.Rmb1.4bn (c.S$296.5m) or 6.4% NPI yield.
MLT could undertake S$200m equity fund-raising. The manager projects 0.4% DPU accretion to FY18 pro forma.

Mapletree Logistics Trust (MLT) 4QFY18 DPU grew 4.1% y-o-y, driven by organic growth from existing properties, the Tsing Yi acquisition and initial contribution from the redeveloped 76 Pioneer Road (committed occupancy increased from 55% in 3QFY18 to 79% in 4Q). This was partially offset by the four divestments in FY18 and redevelopment of Ouluo, China (Phase 1 of Ouluo to be completed in 2QFY19 and is c.60% pre-committed).
NAV increased 6% y-o-y to S$1.10/unit due mainly to cap rate compression in HK and redevelopment capex.

Portfolio occupancy improved 40bp q-o-q to 96.6% due to higher occupancies in SG (+1.3% pts q-o-q to 94.6%, thanks to 76 Pioneer) and South Korea (+1.8% pts q-o-q to 95%; occupancy at Pyeongtaek property improved to 89% from 85% in 3Q). HK’s occupancy fell 3.2% pts q-o-q due to the acquisition of the remaining 38% stake in Shatin No.3.
Mapletree Logistics Trust (MLT) recorded +2.6% rental reversion for FY18, with positive reversions across most countries. HK was strongest at +5%; China: +3.4%, SG: +1.3%, Japan: +1.5%, Australia: +2.5%.

Mapletree Logistics Trust has also proposed the acquisition of a 50% stake in 11 properties in China (four properties are located in the midwest region, seven in the eastern region and one in Tianjin) from its sponsor for c.Rmb1.4bn (c.S$296.5m) or 6.4% NPI yield. Its sponsor will continue to hold the balance 50%.
The total acquisition consideration is c.Rmb1.0bn or S$213m (taking into account the underlying debts of c.Rmb1bn or c.S$197m at the target companies). We expect the acquisition to be completed by Jun.

Assuming S$200m of equity fund-raising proceeds (166.7m new units at S$1.20/unit) and c.S$12m debt to fund the acquisition, the manager estimates a 0.4% DPU accretion to FY18 pro forma (also assumes 97.7% committed occupancy vs. current 83%).
Post the completion, gearing is expected to hover at 37.5%; AUM (asset under management) will grow 5% to S$6.8bn, with China accounting for 9% of the enlarged portfolio.

In our view, the main benefit is the addition of e-commerce or e-commerce-related companies, such as JD.com (accounts for c.21% of acquisition portfolio income) and Cainiao (logistics arm of Alibaba; c.19% of income) into Mapletree Logistics Trust’s tenant base.
As these e-commerce players are aggressively expanding into Southeast Asia, Mapletree Logistics Trust can leverage then network effect and cross-sell its warehouses in countries such as Vietnam. Accordingly, e-commerce revenue exposure in China will increase from 18% to 42%.

Incorporating the potential acquisition and a higher unit base, we cut our FY19F-20F DPU by 3-3.3%. Our DDM-based Target Price accordingly falls to S$1.39.
With its organic portfolio now displaying same-store growth and given its acquisitions, we still like Mapletree Logistics Trust’s Asia-Pacific logistics story. Also, the sale of 7 Tai Seng has now been novated to Mapletree Industrial Trust (Rating: ADD; Target Price: S$2.12); some of the sizeable divestment gains (c.S$23.1m) could be distributed to unitholders.
Downside risks are higher interest rate and rising trade tension.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-04-30

SGX Stock Analyst Report ADD Maintain ADD 1.39 Down 1.430