Mapletree Logistics Trust - DBS Research 2018-10-23: On Firmer Footing

MAPLETREE LOGISTICS TRUST (SGX:M44U)

Mapletree Logistics Trust - On Firmer Footing

Mapletree Logistics Trust’s 2Q19 DPU in line; 1H19 operational performance tracking in line with estimates.
Operational performance continues to firm; occupancy is improving while reversions remain positive.
Recently completed acquisition of five warehouses in Singapore to underpin an even stronger 2H19.
An exceptional year in terms of acquisitions; Mapletree Logistics Trust to continue scouting for opportunities to drive earnings.

Mapletree Logistics Trust’s 2Q19 gross revenues and net property income (NPI) grew by 13.8% and 14.6% y-o-y to S$106.6m and S$90.2m respectively as improved performance from its existing portfolio, coupled with contribution from past acquisitions in Hong Kong, helped offset the absence of income from the divestment of five properties completed over FY18 and 1Q19 (7 Tai Seng Drive) and also weakness in the AUD.
On a half-year basis, gross revenues and new property income grew by 11.9% and 12.8% respectively, due to contribution from its Hong Kong acquisitions offsetting the loss of income from divestments and weaker AUD, JPY and HKD vs the SGD.
Overall performance was also boosted by the new contribution from joint ventures, relating to Mapletree Logistics Trust’s acquisition of 11 properties in China.
Financed cost increased by c.27.2% y-o-y due to the enlarged borrowings to part fund acquisitions. This resulted in a strong uplift in distributable income (+21.8% y-o-y) to S$133.3m in 1H19. After accounting for amounts to perpetual holders, unitholder distributions rose by 30.8% to S$124.8m. This was partly boosted by the payment of gains from Tai Seng Drive, 4 Toh Tuck Link, Zama Centre and Shiroishi Centre.
Due to the enlarged share base, 1H19 DPU of 3.915 Scts (+3.7% y-o-y) formed 51% of our FY19F estimates.

Following the successful acquisitions of 11 properties (50% interest) in China, which include newly completed assets and thus carry a lower occupancy rate of c.91%, Mapletree Logistics Trust’s portfolio occupancy crept up to 97.6% vs 95.7% in 1Q19. This mainly came on the back of lease-up of space in China (98.3% in 2Q19 vs 91.0% in 1Q19).
We also saw a slight uptick in occupancy for other key markets of Singapore (96.3% in 2Q19 vs 94.7% in 1Q19), South Korea (94.2% in 2Q19 vs 93.8% in 1Q19) while that in Hong Kong dipped slightly to 98.6% vs 100% a quarter ago.
Positive rental reversions averaged 1.3% in 1Q19, mainly from Hong Kong and Vietnam. Singapore remained fairly flattish, while other markets like China and Korea saw a slight uptick.

Portfolio cost of debt remained stable at 2.5% in 2Q19.
Meanwhile, gearing increased to 38.1% (2Q19) vs 36.4% (1Q19) which was largely due to loans to partially fund the acquisition of five properties in Singapore, redevelopment and working capital purposes.
The weighted debt duration remains long at 4.3 years with a high proportion of debt hedged via fixed rates at c.80%, similar to last quarter. Mapletree Logistics Trust has no more refinancing needs in this financial year.

It has been an exceptional year in terms of acquisitions, with Mapletree Logistics Trust acquiring close to S$1bn of properties.
Looking ahead, we see an improved quality in portfolio post the acquisition of five warehouses in Singapore, whose contribution will boost earnings and infuse further income stability in 2H19.
We have further priced in S$300m worth of acquisitions to be completed towards the end of FY2020 in our estimates.

Derek TAN DBS Group Research | Mervin SONG CFA DBS Research | Carmen Tay DBS Research | https://www.dbsvickers.com/ 2018-10-23

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