Mapletree Logistics Trust - DBS Research 2020-07-22: Unfazed By The Storm

MAPLETREE LOGISTICS TRUST (SGX:M44U)

Mapletree Logistics Trust - Unfazed By The Storm

Raising acquisition estimates on expectations that Mapletree Logistics Trust can deliver accretive acquisitions.
Operating results resilient in a COVID-19-hit quarter; rental rebates lesser than initial expectations.
Overall portfolio metrics to ride on structural tailwinds with 25%-30% revenues linked to e-commerce.

We remain positive on Mapletree Logistics Trust (SGX:M44U) and expect the share price to reach new highs.
We see Mapletree Logistics Trust to continue riding on the robust demand for logistics properties supporting the accelerated adoption of ecommerce post COVID-19. With supportive structural tailwinds in place, we believe Mapletree Logistics Trust remains well placed to also acquire accretively. We raise our Target Price to S$2.20 as we lower our discount rate assumptions.

Mapletree Logistics Trust reported a 10.5% and 12.0% rise in revenues and net property income (NPI) to S$132.4m and S$118.8m respectively. Higher revenue was generated from its existing properties, fuelled by new contributions from properties acquired in Malaysia, Vietnam, South Korea and Japan. This more than offset the contribution from its 6 divestments and rental rebates incurred in the quarter granted to eligible tenants due to the COVID-19 pandemic.
Distributable income rose by 5.2% y-o-y to S$77.8m (or S$82.0m before) after stripping off coupons to perpetual security holders. The lower y-o-y increase in DPU is mainly due to the increase in units issue of roughly c.4.6% on a y-o-y basis.
On a q-o-q basis, Mapletree Logistics Trust's DPU is flattish largely due to rental rebates incurred in 1QFY21 vs. a quarter ago. This is on the back of a 3.6% increase in NPI to S$118.8m (+4.6% or S$4.1m), offset by higher borrowing costs (+8.4% or +S$2.5m) to S$21.6m and lower contribution from JV ( -72% or -S$6.4m) q-o-q to S$2.4m. 4QFY20 JV results were boosted by almost c.S$5.0m in revaluation gains.

Mapletree Logistics Trust's gearing stayed stable at 39.6% (vs. 39.3% a quarter ago), which accounted for incremental debt to fund its acquisition activities. Interest rates declined to 2.3% (vs. 2.5% a quarter ago) with 80% of its debt hedged into fixed rates. Currency hedges remain consistently high at c.78% of the income stream in the next 12 months.

While the past quarter was likely the worst quarter for most listed REITS, Mapletree Logistics Trust put up a creditable performance. Mapletree Logistics Trust estimates to incur up to S$5m-10m of rental rebates as assistance for its tenants in FY21F. Assuming these sums are incurred in the quarter, operational results would have been 5.0% points – 9.0% points higher and 1QFY21 DPU a tad higher y-o-y.

Mapletree Logistics Trust occupancy rates dipped marginally to 97.2% (vs. 98.0% in 3QFY20). The dip was mainly coming from Korea (94.7% in 1QFY21 vs. 96.0% in 4QFY20) and China (92.3% in 1QFY21 vs. 96.3% in 4QFY20) which is attributable to transitional movements owing to COVID-19 outbreak while the completion of Ouluo Phase 2 (completed in May’2020) which is c.44% pre-committed may have contributed to the dip in vacancy rates.
During the quarter, Mapletree Logistics Trust renewed or replaced leases at an average rental reversion of 1.9%, which is stable compared to the c.2.0% a quarter ago. This mainly came from its Hong Kong, China, Vietnam and Malaysia properties.

The manager is seeing continued cautiousness amongst its tenants given the COVID-19 which has disrupted supply chains amid lock-downs across various countries, to curb the spread of the coronavirus. We understand that all of its tenants have resumed operations except 1.3% of Mapletree Logistics Trust’s revenue base. With a diversified portfolio in geography and tenant trade sector, we remain confident that Mapletree Logistics Trust can continue to deliver stable returns despite the fragile economic outlook in the near term.
Recent acquisition of a property in Brisbane (A$21.3m) will contribute from 3QFY21, providing the REIT with a stable growth profile.

We have raised our acquisition assumption to S$400m (vs. S$350m) on the back of bigger sized deals that Mapletree Logistics Trust can execute to deliver accretion to unitholders. The opportunities will come from the Sponsor or potentially 3rd parties.
Our target price is raised to S$2.20 on the back of lower WACC assumptions as we bring our risk free rates down to 2.0%.
See Mapletree Logistics Trust Share Price; Mapletree Logistics Trust Target Price; Mapletree Logistics Trust Analyst Reports; Mapletree Logistics Trust Dividend History; Mapletree Logistics Trust Announcements; Mapletree Logistics Trust Latest News.

Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2020-07-22

SGX Stock Analyst Report BUY MAINTAIN BUY 2.20 UP 2.050