Mapletree Group Of REITs - DBS Research 2018-10-01: Making Waves In Bangkok

MAPLETREE GROUP OF REITS | SGinvestors.io MAPLETREE COMMERCIAL TRUST SGX:N2IU MAPLETREE NORTH ASIA COMM TR SGX:RW0U MAPLETREE INDUSTRIAL TRUST SGX:ME8U MAPLETREE LOGISTICS TRUST SGX:M44U

Mapletree Group Of REITs - Making Waves In Bangkok

  • Actively acquiring to grow AUM, diversify exposures and boost distributions.
  • REITs are positioned in real estate sub-sectors that have proven to exhibit resilience across market cycles.
  • Strong investor interest in recently held Mapletree Bangkok Day.



Actively acquiring to grow AUM, diversify exposures and boost distributions.

  • Nimble and decisive in executing their growth strategy and supported by a Sponsor with strong firepower, the Mapletree Group of REITs have been one of the more active S-REITs over the past 12 months, acquiring close to S$3.1bn in assets in Singapore, Hong Kong, China, Japan and the US. 
  • Trading at attractive cost of capital, the REITs also raise close to S$1.7bn in new equity with strong investors support, shoring up their balance sheets, positioning them to take on new opportunities come 2019 and beyond.


A proven track record of resilience across market cycles.

  • We believe that the Mapletree Group of REITs are positioned in the more resilient commercial (mainly retail) and industrial sectors (factories, warehouses and data centres), which in our view, are safer havens given the ongoing macro uncertainties. 
  • In fact, the managers are seeing a steady improvement in operating outlook for most sectors (mainly the industrial and retail) going into 2019. We believe that both Mapletree Logistics Trust (MLT) and Mapletree Industrial Trust (MINT) will benefit from abating supply risk in its Singapore operations, boosted by contributions from recently completed acquisitions.
  • Mapletree North Asia Commercial Trust (MAGIC) and Mapletree Commercial Trust (MCT) have dominant properties in Hong Kong and Singapore, respectively, which we believe could withstand supply challenges and will continue to churn out positive rental upside in the coming quarters.



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Strong investor interest in recently held Mapletree Bangkok Day.

  • Backed by a Sponsor with pedigree branding who have been actively acquiring land to build a pipeline for its REITs, the Mapletree Group of REITs continue to attract a strong following in our recent corporate access event in Bangkok. 
  • Investor interest still revolves around the group’s ability to grow revenues and at the same time keep balance sheet metrics strong with gearing well within management comfortable limits with access to banks. 
  • While interest rates are rising, compressing credit spreads and a wider range of debt funding options (through MTNs, etc.) imply that any upward pressure on interest rates is likely to be marginal.


MAPLETREE LOGISTICS TRUST (SGX:M44U)  Mapletree Logistics Trust (SGX:M44U) Share Price  Mapletree Logistics Trust (SGX:M44U) Target Price  Mapletree Logistics Trust (SGX:M44U) Analyst Reports  Mapletree Logistics Trust (SGX:M44U) Corporate Actions  Mapletree Logistics Trust (SGX:M44U) Announcements  Mapletree Logistics Trust (SGX:M44U)Latest News  Mapletree Logistics Trust (SGX:M44U) Blog Articles


Majority of markets to see improved performance; driven by a diverse demand from 3PLs .

  • The manager sees improved demand and expects to see higher rents in a majority of the markets that they operate in. We estimate that in FY20, Mapletree Logistics Trust (MLT) derives 83% of its income from “developed markets” in Asia which mainly consists of Singapore (c.41% of revenues), Hong Kong (c.22%), Japan (c.6%) and Australia (c.8%) which offer stable returns. 
  • China (13% of revenues) is also expected to grow strongly with supply risk tapering off in its micro-markets and boosted by the recent acquisition of a 50% stake in 11 properties completed in 2Q18.

Acquisition opportunities to drive growth.

  • MLT has been on an acquisition spree, adding approximately c.S$1.8bn in new assets (Hong Kong, China and Singapore) over the past 12 months. While 3rd party acquisitions are generally opportunistic in nature, MLT has the support from the Sponsor for a key source of a pipeline of deal flow. 
  • Looking ahead, we think markets like China, Hong Kong, Japan and Australia present the most opportunities to grow inorganically. 
  • We do note that MLT’s pipeline from China continues to grow extensively and a majority of which is in China and is in various stages of development and leasing.

Asset recycling opportunities; manager to share gains with unitholders.

  • The manager keeps an eye on optimising portfolio returns through active divestments and asset rejuvenation for older assets to maintain the asset relevance to end-users. In cases where potential capital returns are limited, the manager will choose to divest. 
  • We note that the manager have ear-marked up to S$200m in potential divestments in the coming quarters. Any realised gains will likely to be paid out to unitholders, in line with historical trends.

Recapitalised balance sheet; minimal interest rate risk.

  • MLT recently raised S$375m in new equity through a private placement exercise to part fund the recent acquisition of five ramp-up properties (total cost of S$778m) in Singapore. Post fund raising, gearing is estimated to settle at c.38%, still within a comfortable range. 
  • Portfolio interest cost of 2.5% will likely remain stable given the limited near-term refinancing risk and with > 80% of its interest costs fixed.


MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)  Mapletree Industrial Trust (SGX:ME8U) Share Price  Mapletree Industrial Trust (SGX:ME8U) Target Price  Mapletree Industrial Trust (SGX:ME8U) Analyst Reports  Mapletree Industrial Trust (SGX:ME8U) Corporate Actions  Mapletree Industrial Trust (SGX:ME8U) Announcements  Mapletree Industrial Trust (SGX:ME8U)Latest News  Mapletree Industrial Trust (SGX:ME8U) Blog Articles


A healthier operating climate to come.

  • Mapletree Industrial Trust (MINT)'s manager is still seeing some rental and occupancy pressure in the flatted factories and business park segments in the shorter term, as the rental spreads (expiring rental levels vs market rental levels) are still negative. In addition, the manager has only back-filled c.25% of the vacated by Johnson & Johnson. 
  • In the medium term, due to the drop off in supply from 2019 and a fall in new industrial land additions through the government tenders, the industrial market is expected to achieve a steady state.

An emerging data-centre play.

  • The manager maintains that the REIT will look to grow its overseas data-centre exposure to c.20% of its assets (vs 10% now). Apart from the US, where the REIT has a portfolio of data-centres, MINT is also looking at other jurisdiction in Europe and the UK, which offer interesting acquisition opportunities while also looking at increasing its exposures in the US. 
  • The manager likes to add more “data-centre shells” to the REIT that are less volatile, coupled with the fact that it is now taking on less operational risk.

Development projects and potential acquisitions to complement a fairly flattish organic growth.

  • The manager’s focus is to complement a steady organic growth profile through selective development opportunities or acquisitions. Going forward, this will come from the full-year contribution from the Hewlett Packard building phase 2 and a recently completed built-to-suit (BTS) data centre in Singapore. 
  • The manager is also undertaking the refurbishment and conversion of 7 Tai Seng from a logistics facility into a high-specifications industrial property to accommodate an tenant in the information & communication technology industry which signed a 25-year contract, offering strong income visibility.
  • A potential acquisition opportunity in the Sponsor’s pipeline is an industrial property – 18 Tai Seng, which we understand to have achieved close to 85% occupancy as of 31 March 2018.

Minimal refinancing risk.

  • With interest rates expect to remain on an uptrend going into 2019, the manager has undertaken proactive measures to lock-in interest rates with close to c.78% of its debt hedged as of end-1QFY19. 
  • All-in interest cost is expected to trend higher from the current c.3.0% but should move at a measured pace.


MAPLETREE COMMERCIAL TRUST (SGX:N2IU)  Mapletree Commercial Trust (SGX:N2IU) Share Price  Mapletree Commercial Trust (SGX:N2IU) Target Price  Mapletree Commercial Trust (SGX:N2IU) Analyst Reports  Mapletree Commercial Trust (SGX:N2IU) Corporate Actions  Mapletree Commercial Trust (SGX:N2IU) Announcements  Mapletree Commercial Trust (SGX:N2IU)Latest News  Mapletree Commercial Trust (SGX:N2IU) Blog Articles


Vivocity still drawing crowds, completion of AEI to draw crowds and sales.

  • Despite ongoing challenges in the retail sector, fortunately for Mapletree Commercial Trust (MCT), Vivo City (that contributes c.40% of the portfolio revenues) remains a choice location for both retailers and shoppers, where a majority of retailers will like to maintain a presence. 
  • The recent asset-enhancement initiative (AEI) involving the adding of a library at level 3 and adding close to 24,000 sqft of new retail space in Basement 1 is expected to draw more traffic from families and shoppers to the mall. MCT expects to achieve an ROI of 10% ( on S$16m spent) on a stabilised basis.

Office and Business Park portfolios remain stable.

  • While MCT saw slight shifts in occupancy rates in recent quarters due to tenancy movements, MCT have been successful in the back- filling of the vacated office space, especially at Mapletree Anson (90.8% as of 1QFY19) and PSA Building (95.4% as of 1QFY19) but will see occupancy rates head towards 100% given higher pre-commitment levels. 
  • Rental reversions while still negative as of end-1QFY19 at -5.3%, should bottom out going into next year given the expected strong office rent growth driven by the lack of available new completions in the Central Business District (CBD).

Staying local.

  • With an attractive pipeline of potential assets that could be injected into the REIT, MCT intends to remain a Singapore-focused REIT, one of the eight REITs left in Singapore with such a “pure-play status”. 
  • The clarity in earnings and strategy to investors might mean a premium in terms of valuations being accorded to the REIT.

Valuations could see upside.

  • Recent transaction of office buildings in the CBD and retail malls across the island at implied tight cap rates of c.1.7%-2.7% for office and 3.0+% - 4.25% for retail malls, thus implying that the “market value” for MCT assets could potentially be higher in the upcoming results release. 
  • We see most upside from Mapletree Anson (valued at S$2,123psf) vs the recent sale of 20 Anson for (S$2,503 psf ) and see the potential tightening of cap rates for Vivocity (4.75% cap rate).


MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)  Mapletree North Asia Commercial Trust (SGX:RW0U) Share Price  Mapletree North Asia Commercial Trust (SGX:RW0U) Target Price  Mapletree North Asia Commercial Trust (SGX:RW0U) Analyst Reports  Mapletree North Asia Commercial Trust (SGX:RW0U) Corporate Actions  Mapletree North Asia Commercial Trust (SGX:RW0U) Announcements  Mapletree North Asia Commercial Trust (SGX:RW0U)Latest News  Mapletree North Asia Commercial Trust (SGX:RW0U) Blog Articles


Festival Walk to remain an outperformer.

  • In Festival Walk, Mapletree North Asia Commercial Trust (MNACT) owns one of the top performing retail malls in Hong Kong and at close to c.60% of revenues, the mall continues to be a key revenue driver for the REIT in the medium term. Riding on the recent strength in retail sales in Hong Kong, tenant sales are expected to post a steady upturn. 
  • Rental reversions at Festival Walk are expected to accelerate in FY19F compared to 11% positive reversions in FY18. Apart from stronger operational outlook, further upside is underpinned by the expiry of several anchor tenants through the year.

Properties in China to see stable returns.

  • The REIT’s China properties – Gateway Plaza in Beijing and Sandhill Plaza – are expected to deliver stable returns going forward. 
  • While Gateway Plaza’s rental reversionary outlook is likely to be flattish as rentals have been marked-to-market, we believe that Sandhill Plaza’s reversionary trends are expected to remain positive at > 15% as leases remain below market rates. 
  • While the RMB has weakened, the currency impact is likely to be compensated by a strong HKD which contributes the lion‘s share of its revenues.

Japan to offer improved visibility.

  • We believe the recent acquisition of a portfolio of commercial properties in Japan will be value accretive to the REIT, boost income stability through lengthening the portfolio weighted average lease expiry (WALE) and diversify its earnings base. Moreover, it also presents more opportunities for MNACT to grow inorganically.

An attractive pipeline of properties to be acquired.

  • MNACT has the first right of refusal (ROFR) over several properties from its sponsor, the Mapletree Group. One potential acquisition for MNACT in the medium term is an office tower in Kowloon East while properties in China and Japan currently held by the Sponsor or through its property funds could also be injected in the medium term.





Derek TAN DBS Group Research | Mervin SONG CFA DBS Research | Carmen Tay DBS Research | https://www.dbsvickers.com/ 2018-10-01
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