Mapletree Logistics Trust - Maybank Kim Eng 2018-04-30: Another Right Step, Another Small Gain

Mapletree Logistics Trust - Maybank Kim Eng 2018-04-30: Another Right Step, Another Small Gain MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Another Right Step, Another Small Gain


A further portfolio recalibration

  • Mapletree Logistics Trust (MLT)’s latest acquisition is a positive step supported by healthy market fundamentals. The portfolio’s large e-commerce tenancies should boost its exposure to this secular growth market. However, with DPU accretion at just +0.4%, management is likely eyeing a stronger medium-term rental growth outlook, and potential cross-selling revenue synergies on its expanding Pan-Asian distribution platform. 
  • Our model has been updated following its 4QFY18 results (FY19/20E DPU’s lowered 5%/3%) but we await details of the equity fundraising to include this deal. 
  • Reiterate HOLD and DDM-based Target Price of SGD1.25 (WACC: 7.6%, LTG: 1.5%). 
  • Our preferred sector pick remains the business park-focused Ascendas REIT (BUY, Target Price SGD3.05) with its sizeable debt headroom available to fund growth.


4Q18 occupancy up; +2.6% rental reversion for FY18

  • Mapletree Logistics Trust’s 4Q18 DPU was up 4.1% y-o-y and FY18 DPU of SGD7.62 cts rose 2.4% y-o-y, meeting 99% of ours and the street’s estimates. 
  • Portfolio occupancy improved q-o-q and y-o-y to 96.6%, with improvements in all markets. HK occupancy, which included the acquisition of an additional 38% interest in Shatin No.3, fell q-o-q from 99.8% to 96.6% (otherwise it rose to 99.9%). 
  • Portfolio rental reversion was +2.6% for FY18 and +1.6% for 4Q18, with stronger performance in HK (+6%) and Singapore (+2%) for the quarter. Asset-conversion risks have eased with just 4.6% out of the 24.4% of its leases expiring in FY19 from single-tenanted properties, mostly in Singapore and Malaysia, and China.


Announces new deal at +0.4% DPU accretion

  • Mapletree Logistics Trust also announced acquisition of 50% interest in 11 China properties from its sponsor’s development pipeline. We see favourable market fundamentals, with logistics demand supported by China’s rising consumption expenditure and fast e-commerce growth. 
  • A supply-demand imbalance for Grade A warehouse space is further expected to drive improvement in occupancies and accelerate rental growth from +2.7- 5.1% in 2018 to +3.5-5.9% in 2019. Post-deal, China's contribution to Mapletree Logistics Trust (MLT)’'s AUM/NPI rises from 5%/6% to 9%/11%, while its China exposure to e-commerce-related tenants jumps from 18% to 42%. 
  • The deal size and equity-biased funding structure is similar to its recent HK transactions. This likely signals management’s confidence on acquisition-led growth, albeit at slower DPU accretion given rising asset valuations.
  • The deal will be financed via debt and an equity fund raising, with details to be announced later. The CNY985.3m (SGD205.3m) purchase price represents a 1.7-3.7% discount to Colliers’ and JLL’s valuation. The implied NPI yield is estimated at 6.4%, against MLT’s 6.2% China NPI yield, with DPU accretion at 0.4%. 
  • The properties are new - the oldest is at 2.3 years, and purpose-built with modern Grade A specifications, with committed occupancy of 97.7%, remaining land tenure averaging 47 years, and a WALE of 3.3 years. 
  • Its top five tenants are large e-commerce players - JD.com (JD US, SELL, Target Price USD36),which contributes 20% of gross revenue, with Cainiao (Alibaba, BAB US, HOLD, Target Price USD185) at 19%. China's contribution to MLT's AUM and NPI should rise from 5% and 6% respectively, to 9% and 11% post-acquisition, and its WALE in China should extend from 2.0 year to 2.7 years. 


Swing Factors 



Upside 

  • Earlier-than-expected pick-up in leasing demand for logistics space driving improvement in occupancy. 
  • Better-than-anticipated rental reversion trend. 
  • Accretive acquisitions. 


Downside 

  • Prolonged slowdown in economic activity could reduce demand for logistics space, resulting in lower occupancy and rental rates. 
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate. 
  • Significant volatility in AUD, JPY, MYR and KRW could impede hedging efforts and impact DPU estimates. 
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations. 





Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-04-30
SGX Stock Analyst Report HOLD Maintain HOLD 1.250 Same 1.250



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