Mapletree Logistics Trust - Maybank Kim Eng 2018-07-24: Acquisition Momentum

Mapletree Logistics Trust - Maybank Kim Eng Research 2018-07-24: Acquisition Momentum MAPLETREE LOGISTICS TRUST SGX:M44U

Mapletree Logistics Trust - Acquisition Momentum


Fine-tuning DPU & Target Price ; still a HOLD

  • We raise FY19-20E DPU by 3% on stronger than expected 1Q19 and recent 7 Tai Seng divestment gains. This lifts our DDM-based Target Price to SGD1.30 (WACC 7.4%, LTG 1.5%).
  • Mapletree Logistics Trust’s portfolio rejuvenation has gained momentum with SGD1.1b of deals announced since 1Q18, which drove double-digit y-o-y growth in revenue and NPI. However competition remains intense against a backdrop of shortening WALEs, and would require a continued focus on tenant retention and asset management.
  • Management has earned confidence on larger deals, but DPU-accretion visibility remains limited. 
  • Our preferred pick remains the business-park-focused Ascendas REIT (Rating: BUY, Target Price SGD3.05) for its sizeable debt headroom.



DPU up 3.7% y-o-y on deals, distribution from gains

  • Mapletree Logistics Trust's 1Q19 revenue was up 10.1% y-o-y and NPI, 11.1% y-o-y on the back of portfolio improvements and HK acquisitions: Tsing Yi and an additional 38% interest in Shatin No. 3. These partially offset earlier divestments, including 7 Tai Seng Drive that was completed on 27 Jun. Gains to be partially distributed over 12 quarters at SGD1.924m per quarter till 4Q21 lifted DPU by 3.7% y-o-y.
  • Portfolio occupancy dipped q-o-q from 96.6% to 95.7% from assets in South Korea (95.0% to 93.8%) and China (96.0% to 91.0%). Some of its recently-acquired China properties were newly completed and only 84.8% occupied. Leases commencing in Jul-Aug 2018 should push occupancy up to 97.8%.
  • Portfolio rental reversion was +2.1%, attributable to China (+3.5%), Hong Kong (+2.6%) and Malaysia (+5.3%). Asset-conversion pressures have eased, with just 2.3%/6.3% of its leases to single-user assets expiring in FY19/20, mostly in Singapore and China.
  • While AUM has risen 17% since end-FY17, WALEs have shortened dramatically from 6.0 to 3.5 years over FY12-18 and further to 3.3% in 1Q19, as demand is driven by faster time-to-market needs.


~ SGinvestors.io ~ Where SG investors share

CWT deal no financial closure yet, placement risk

  • Management has not provided updates on its financing needs for the recently announced SGD778.3m acquisition of five CWT Singapore logistics assets. Management is gunning for 1.6% DPU accretion on a 40:60 debt-to-equity structure and earmarked SGD200m of asset disposals.
  • Aggregate leverage of 36.4% as at end-Jun 2018 suggests risks of near-term equity fund-raising, in our view, and a share overhang.
  • SGinvestors.io ~ Where SG investors share


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 foreign currency exchange rates 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 Research | https://www.maybank-ke.com.sg/ 2018-07-24
SGX Stock Analyst Report HOLD Maintain HOLD 1.30 Up 1.250



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