Mapletree Logistics Trust - UOB Kay Hian 2019-01-23: 3QFY19 Slightly Above Expectations; Portfolio Showing Signs Of Resilience

MAPLETREE LOGISTICS TRUST (SGX:M44U)

Mapletree Logistics Trust - 3QFY19 Slightly Above Expectations; Portfolio Showing Signs Of Resilience

Mapletree Logistics Trust's 9MFY19 DPU of 5.917 S cents (+4.2% y-o-y) came in slightly above expectation, accounting for 78.4% of our full-year estimate.
Mapletree Logistics Trust achieved positive rental reversion of 4.5% and portfolio occupancy held steady at 97.7% in 3QFY19.
Management flagged interest to acquire completed properties in its sponsor pipeline. Leasing conditions and occupancy held steady despite trade tensions and tightening financial conditions.
Maintain HOLD. Target price: S$1.39.

MAPLETREE LOGISTICS TRUST (SGX:M44U) posted a 3QFY19 DPU of 2.002 S cents (+5.0% y-o-y), bringing 9MFY19 DPU to 5.917 S cents. 3QFY19 saw gross revenue and net property income increase by a respective 23.0% and 25.9%, driven by organic growth from the existing portfolio, initial contribution from the recently completed redevelopment of Mapletree Ouluo Logistics Park Phase 1 in China, as well as contribution from accretive acquisitions.
The results were slightly above expectation, with 9MFY19 DPU representing 78.4% of our full-year estimate.
Mapletree Logistics Trust is on track to meet our FY19F DPU of 7.5 S cents.

For leases renewed during the quarter, rentals were on average 4.5% higher than preceding rental rates. The higher reversion was attributable mainly to Hong Kong (+10.5%), China (+3.3%), Singapore (+2.5%) and Vietnam (+3%).

During the quarter, Mapletree Logistics Trust completed the divestment of 531 Bukit Batok Street 23 in Singapore, and also announced acquisitions of three ilities in Australia, South Korea and Vietnam.
Gearing increased marginally to 38.8% in 3QFY19 (2QFY19: 38.1%). Total debt outstanding increased by S$105m q-o-q, mainly due to loans drawn to fund the acquisition of one property in Australia and one property in South Korea, partially offset by lower net translated foreign currency debt (yen depreciation), as well as partial funding of acquisitions via proceeds from the divestment of 531 Bukit Batok and Distribution Reinvestment Plan.

Pro-active leasing efforts resulting in well-spread out lease expiry profile (ie with 7.0% and 21.3% of total leases by NLA expiring in FY19 and FY20 respectively). Out of these, single user asset (SUA) leases account for only 1.3% and 5.3% of the leases due in FY19 and FY20 respectively.
Mapletree Logistics Trust's overall occupancy rate remained stable at 97.7% in 3QFY19 (+0.1ppt q-o-q), with Singapore (+0.7ppt q-o-q), Hong Kong (+0.1ppt q-o-q), and South Korea (+3.8ppt q-o-q) achieving higher occupancies. Japan, Australia, Malaysia, and Vietnam maintained 100% occupancy.

During the quarter, JD.com gave up half of their leased space in the Zhejiang project, leading to a decline in China occupancy to 95.8% (-2.5% q-o-q). Management has so far been able to replace most of these spaces with smaller replacement tenants, which will help uplift its China segment’s occupancy in the next quarter. Due to stronger negotiating power with the smaller tenants (ie compared to JD.com), renewals may even see positive rental reversion.
While Chinese e-commerce players move fast (ie willing to invest huge capex), they also come with higher volatility in terms of their willingness to drop out of leases (and incurring the associated penalties). Such tendencies relate more to tier-two and -three cities, where supply is plentiful. For tier-one cities, Chinese e-commerce tenants tend to be more careful in their leasing decisions. In contrast, other non-Chinese e-commerce players like Amazon, take a more deliberate and measured approach to leasing commitments.

In terms of acquisitions, management is focused on completed assets from its sponsor pipeline (ie with logistics development projects in Asia totalling c.51m sf as at 31 Dec 18), especially in China. They also guided on making divestments on some assets located in Singapore, Japan, and South Korea in FY19.

Continuing trade tensions and tightening financial conditions have weighted on the global economic outlook. Despite this, leasing demand for Mapletree Logistics Trust's portfolio has held steady, supporting rentals and occupancy rates.
Management also cited the high tenant retention of c.70-80% as signs of portfolio resilience going forward. They remain vigilant of the evolving environment, and have pro-actively hedged 85% of Mapletree Logistics Trust’s total debt on fixed rates (ie c.88% of its FY19 income stream).

Maintain HOLD and target price of S$1.39, based on DDM (required rate of return: 6.8%, terminal growth: 1.5%).
Entry price is S$1.26.

Jonathan Koh CFA UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2019-01-23

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.390 SAME 1.390