Mapletree Logistics Trust - UOB Kay Hian 2019-04-29: 4QFY19 Above Expectations; Steady Delivery

MAPLETREE LOGISTICS TRUST (SGX:M44U)

Mapletree Logistics Trust - 4QFY19 Above Expectations; Steady Delivery

Mapletree Logistics Trust’s 4QFY19 results beat expectations. Overall portfolio saw rental reversion of +2% in FY19, while occupancy remained high at 98%. Management flagged interest in acquiring sponsor’s China properties (completing in the next 12-18 months).
Despite CWT International’s default in Hong Kong, Mapletree Logistics Trust appears to be insulated with 6-month security deposits and “sticky” underlying tenants.
Maintain HOLD. Target price: S$1.39. Entry price: S$1.26.
Maintain OVERWEIGHT on the sector.

MAPLETREE LOGISTICS TRUST (SGX:M44U) posted 4QFY19 DPU of 2.024 S cents (+4.5% y-o-y), bringing FY19 DPU to 7.941 S cents (+4.2% y-o-y). 4QFY19 saw gross revenue and net property income increase by 13.0% y-o-y and 15.0% y-o-y respectively, driven by the completed redevelopment of Mapletree Ouluo Logistics Park Phase 1 in 2QFY19, acquisitions in Hong Kong (completed in FY18), acquisitions in Singapore, Australia, Korea, and Vietnam completed in FY19, but partially offset by absence of contributions from two divestments in FY19.
The results were above expectations, with FY19 DPU representing 105.6% of our full-year estimates.

The higher reversion during the year was attributable mainly to Hong Kong (+5.8%), China (+2.6%), Vietnam (+2.8%), Singapore (+0.3%) and Malaysia (+1%). Reversion was flattish for Korea, and there were no expiries for Japan and Korea.

Mapletree Logistics Trust’s gearing has taken into account a revaluation gain of S$203m. Post completion of divestment of five of Mapletree Logistics Trust’s Japan properties in Apr 19, gearing has declined further to 36.2%.
Mapletree Logistics Trust’s weighted average debt maturity was maintained at 4.1 years (flat q-o-q), which continues to be well-staggered. Only 3.6% of total debt will be due in FY20.

(ie with 21.4% and 20.9% of total leases by NLA expiring in FY19 and FY20 respectively). Out of these, single user asset (SUA) leases account for only 5.0% and 5.8% of the leases due in FY20 and FY21 respectively.

(+0.3ppt q-o-q), due to higher occupancies in Singapore (+0.4ppt q-o-q), Hong Kong (+0.1ppt q-o-q), and South Korea (+1.1ppt q-o-q). Japan, Australia, Malaysia, and Vietnam maintained 100% occupancy.

Management is focused on the sponsor’s China pipeline (those which may be completed in the next 12-18 months). They also singled out Japan and Korea as interesting markets, in terms of yield spread (due to the low cost of borrowing).
For Japan, management is looking for newer assets with better specifications, and getting into multi-tenanted, short WALE leases, which offer opportunities to push for rental reversion.

Hong Kong-listed CWT International (521 HK) has defaulted on accrued interests and fees of HK$63m for a HK$1.4b credit facility. Banks have seized control of assets, including wholly-owned Singapore-based subsidiary CWT Pte Ltd (Mapletree Logistics Trust's largest tenant accounting for 9.2% of Mapletree Logistics Trust's gross revenue as of 4QFY19), investment properties in the US and golf courses in China. CWT Pte Ltd has continued to operate as usual and has fully redeemed its 3.9% S$100m notes due on 18 Apr 19.
About 30% of the leases (1m sf) to CWT Pte Ltd are third-party end-users under sub-lease agreement. In the event that CWT Pte Ltd defaults on rental payments, Mapletree Logistics Trust could take over these sub-leases. For the remaining 70% of leases (2m sf), we see two possible scenarios:
1. Mapletree Logistics Trust referring end-users to other third-party logistics providers, who could take over the leases.
2. Other third-party logistics providers acquire CWT Pte Ltd and take over the leases.
CWT Pte Ltd has not defaulted on its rental payments and there are no arrears due from CWT Pte Ltd at this point in time. Mapletree Logistics Trust has collected security deposits of six months from CWT Pte Ltd. The underlying tenants are also extremely “sticky”, given that CWT portfolio assets come with very high specifications, and rare licenses, such as food, dangerous goods and etc.

Slowdown in international trade and manufacturing may have a negative impact on demand for warehouse space. Notwithstanding the current industry conditions, Mapletree Logistics Trust appears resilient due to its diversified portfolio, proactive lease management and large tenant base.

Singapore market is showing signs of stabilisation, as new supply tapers off. In Hong Kong, demand-supply dynamics remain favourable, and supportive of rental reversions and high occupancies.
China is also expected to remain resilient, particularly in tier-1 cities (tight supply) while certain sub-markets (tier-2 & 3) pose a challenge due to anticipated surge in new supply of warehouse space.
Japan, on the other hand, remains stable and provides a steady income stream and long leases.

Jonathan Koh CFA UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2019-04-29

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.390 SAME 1.390