Mapletree Logistics Trust - UOB Kay Hian 2018-07-25: 2Q18 Results In Line

MAPLETREE LOGISTICS TRUST SGX:M44U

Mapletree Logistics Trust - 2Q18 Results In Line

Mapletree Logistics Trust’s 1QFY19 DPU grew 3.7% y-o-y on the back of improved performance from its portfolio and new acquisitions in Hong Kong.
Maintain HOLD, and target price S$1.36.

Mapletree Logistics Trust (MLT)’s 1QFY19 DPU of 1.957 S cents (+3.7% y-o-y) represents 25.7% of our full-year estimate.
Gross revenue and net property income increased 10.1% y-o-y and 11.1% y-o-y respectively due to improved performance from its portfolio as well as contributions from its recent two acquisitions in Hong Kong, but partially offset by the absence of revenue from four divestments completed in FY18 and one divestment this quarter.

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Mapletree Logistics Trust’s overall occupancy rate was down 0.9ppt q-o-q to 95.7% in 1QFY19 due mainly to a lower occupancy rate in China (91%), which took into account the recent acquisition of 11 properties (50% interest) which were only 84.8% occupied. As some of these 11 properties are newly completed and have leases commencing in Jul-Aug 18, if included, occupancy rate would be 98.3% for the 11 new China properties, 97.8% for China and 97.1% for the overall portfolio.
Across its portfolio, Hong Kong saw a rise in occupancy from 96.6% in 4QFY18 to 100% in 1QFY19, while occupancies dipped in South Korea (from 95.0% to 93.8%), China (from 96.0% to 91.0%) and Vietnam (from 100% to 98.5%). 1QFY19 portfolio rental reversions were up 2.0% q-o-q, attributable mainly to China, Malaysia and Hong Kong. In Singapore, we understand rental reversions were flat.
Pro-active leasing efforts resulted in well-spread out lease expiry profile with 19.5% and 21.8% of total leases by NLA expiring in FY19 and FY20 respectively. Of these, single user asset (SUA) leases account for 2.3% and 6.3% of the leases due in FY19 and FY20 respectively.

Post-completion of the acquisition of 11 properties (50% interest) in China and divestment of one property in Singapore, Mapletree Logistics Trust’s total number of properties comprises 134 and S$6.8b in AUM. The group’s presence in Singapore will be strengthened further with the expected completion of the acquisition of five ramp-up logistics properties in Singapore (expected in 1-2 months). Currently, the group is undertaking the redevelopment of Ouluo Logistics Centre in China, in which Phase 1 is targeted for completion in 2QFY19 and Phase 2 in 4QFY20. The estimated cost is S$70m and this will increase the GFA by 2.4x to 80,000sqm.

Gearing declined 1.3ppt q-o-q to 36.4% in 1QFY19. Total debt outstanding increased marginally by S$23m due to loans drawn to partially fund the acquisition of 11 properties (50% interest) in China, but offset partially by repayment of loans with net divestment proceeds from 7 Tai Seng, and lower net translated foreign debt (due to weaker yen and A$ against S$ offset by stronger H$ against S$).
On our estimates, Mapletree Logistics Trust still has debt headroom of S$652m.

The Singapore leasing market remains competitive in the near term (and it takes time for vacant warehouse space to be absorbed by the market), but new supply is expected to taper in the future years. Meanwhile, Hong Kong continues to enjoy favourable supply-demand dynamics, which will support rents and high occupancies.
Mapletree Logistics Trust’s portfolios in Japan and Australia are expected to remain stable due to the long leases and 100% occupancy although the group did indicate that there are trends that lease period for selected developed countries could decline as tenants seek more flexibility.
Despite management guiding for healthy demand for logistics properties across its diversified market due to continued economic growth, Mapletree Logistics Trust has also cautioned on the possible escalation in trade tension as well as faster-than-expected quantitative tightening in advanced economies, which may temper this expected growth.

This is to reflect a 25bp rise in our risk-free rate assumption to 2.75%.
Our valuation is based on DDM (required rate of return: 6.9%, terminal growth: 2.0%). Entry price: S$1.24.

Andrew Chow UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2018-07-25

SGX Stock Analyst Report HOLD Maintain HOLD 1.36 Down 1.410