Mapletree Logistics Trust - Maybank Kim Eng 2018-07-06: Homecoming, And A Placement Risk

Mapletree Logistics Trust - Maybank Kim Eng 2018-07-06: Homecoming, And A Placement Risk MAPLETREE LOGISTICS TRUST SGX: M44U

Mapletree Logistics Trust - Homecoming, And A Placement Risk


First acquisition in S’pore in four years; Prefer MINT

  • Mapletree Logistics Trust (MLT)’s SGD778m purchase of five logistics properties possibly signals its homecoming and industrial sector recovery.
  • While near-term tenancy risk rises, MLT’s growing logistics ambition suggests longer-term upside from expiring leases.
  • How the deal will be funded is still unclear – we see risk of a placement as it will take time to divest SGD200m of low-yielding assets to free up its balance sheet. As such, this funding gap could create an overhang.
  • We prefer Mapletree Industrial Trust (SGX:ME8U; Rating: BUY, Target Price: SGD2.25) for its stronger balance sheet and DPU growth profile.



Acquiring five S’pore properties at 6.2% NPI yield

  • Mapletree Logistics Trust (MLT) announced it will acquire five modern logistics properties in Singapore for SGD778.3m (including a SGD48.3m balance lease top-up) from CWT through a sale-and-leaseback. It has also secured a right of first refusal (ROFR) on CWT’s Mega Integrated Logistics Hub (47 Jalan Buroh) subject to a prior ROFR to JTC.
  • The assets were part of a ROFR pipeline for Cache Logistics Trust (SGX:K2LU; Rating: BUY, Target Price SGD0.95) that expired after ARA acquired CWT’s share in its REIT and property manager. io. They are new, with a weighted average age (by NLA) of 4.8 years and are well-located in the three key western logistics clusters with connectivity to the upcoming Tuas Mega Port and 20-mins to the city centre.
  • Mapletree Logistics Trust expects the deal to be DPU-accretive and offer 6.2% NPI yield, with the leaseback terms on a combined WALE (by revenue) of 8.7 years, and built-in rental escalation of +1.5% per annum.


Tenancy risk up, end-user demand well-supported

  • Tenancy risk has increased with contribution from CWT leases rising from 6.5% to 9.5% of its gross revenue, although secular growth drivers - rapid e-commerce expansion, increasing supply chain efficiency – will support underlying end-user demand, in our view.
  • Mapletree Logistics Trust (MLT) will further leverage its widening logistics provider network in direct leasing arrangements with remaining 30% of third-party end-users to drive occupancies and rentals.


Funding options aplenty; equity most likely

  • While the deal funding structure has yet to be finalised, Mapletree Logistics Trust is targeting SGD200m in divestments of older low-yielding assets to boost its balance sheet, together with a reactivation of its dividend reinvestment plan.
  • We believe an equity fund raising will be likely, given the funding gap and lead time for asset sales, which could result in an overhang.


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 | https://www.maybank-ke.com.sg/ 2018-07-06
SGX Stock Analyst Report HOLD Maintain HOLD 1.250 Same 1.250



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