Mapletree Logistics Trust - DBS Research 2020-11-11: Gateway To Asia’s Burgeoning Logistics Sector


Mapletree Logistics Trust - Gateway To Asia’s Burgeoning Logistics Sector

  • Surprise significant acquisition to make deeper inroads within Asia’s logistics sector.
  • Mapletree Logistics Trust's ‘Follow your tenant’ strategy to result in sticky relationships with more than 40% of tenants having a presence in various locations.
  • Factored potential acquisitions of S$400m in FY21 and S$500m in FY22 into our estimates.

Mapletree Logistics Trust - Exposure to Asia’s burgeoning logistics sector

Blowing away our acquisition estimates!

  • Mapletree Logistics Trust (SGX:M44U) has announced the proposed acquisition of nine logistics properties in Malaysia, Vietnam and China and the remaining 50% interest in 15 logistics properties in China for a total consideration of S$1,090.2m.
  • The agreed property value of the target portfolio was approximately S$1,040m (2x our assumed S$500m estimates). The agreed property value is noted to be 0.9%- 1.7% below two independent valuations that were undertaken. As the deal is a related party acquisition, the Manager intends to call for an EGM at a later date.

Our thoughts:

Riding on “China Plus” growth strategy.

  • The proposed acquisition is an extension of Mapletree Logistics Trust’s multi-year strategy of creating a massive logistics network within the Asia Pacific, deepening its foothold within key Asia Pacific countries (and a leading position within selected ASEAN logistics hubs in Vietnam and Malaysia). We note that the target cities enjoy stable demand-supply dynamics anchored by strong urbanisation trends, which is expected to improve operational metrics.
  • In addition, the COVID-19 outbreak is expected to accelerate the adoption of e-commerce in the region as manufacturers continue to diversify their supply chains outside of China while companies seek to carry more inventory stock as they shift from a “just-in-time” to “just-in-case” strategy. These factors will drive demand for logistics properties in the longer term.

Network effect results in Mapletree Logistics Trust being the choice provider of logistics solutions.

  • The ability to offer multi-location solutions to the end tenants has seen the REIT forming sticky relationships with over 42% of tenants that have a presence in more than one location under Mapletree Logistics Trust’s umbrella of properties. This has resulted in steadier occupancy rates (c.97.5% as of 2QFY21) which have been resilient across market cycles.

Initial yield of 5.2% has tightened compared to a year ago.

  • The acquired portfolio’s initial yield is estimated to be c. 5.2% (broken down into China (c.5.1%), Malaysia (c.5.4%) and Vietnam (c.7.25%)). We understand that portfolio valuations have remained stable for most but are higher in China, especially for JV properties which saw a 14% increase in valuations compared to a year ago.
  • The tightening cap rates are expected in view of the robust demand for modern logistics properties post the COVID-19 pandemic. The target portfolio occupancy rate of 94.7% also provides upside potential to earnings if the vacancy is leased-up in the medium term. The WALE of 2.3 years also offers potential reversionary upside when the leases are due for renewal, especially in China.

Proposed funding structure to infuse more debt-funded capacity into Mapletree Logistics Trust.

  • The transaction is expected to enhance its capital structure and is accretive on both NAV and DPU fronts. The Manager tapped the equity market which saw healthy participation from investors. The acquisition price of S$1,023.8m (inclusive of fees) will be funded using 90% equity with the remainder c.10% in debt (c.S$118.5m). A small portion of the acquisition fee i.e. S$5.3m will be satisfied in the form of units.
  • Post deal, Mapletree Logistics Trust’s gearing is expected to decline to 37.1% (vs 39.5% as of Sept’20). The Sponsor is taking S$300m (or 33% of the equity fund raising) in the form of consideration units, which will bring its stake in Mapletree Logistics Trust to c.31.6%, aligning its interest with unitholders.

It is not over! More acquisitions in the works.

  • With enhanced debt funding capacity, the Manager continues to look to grow its network post this proposed transaction and is looking to possibly add more properties from third party sources. The Manager is looking at potentially acquiring S$400m (c.40% gearing) worth of assets in Australia, Japan, Malaysia, Vietnam and Korea within the next 6 months. We have priced in a debt funded deal of S$400m in our estimates for FY21 and another S$500m (60% equity/40% debt) by end of FY22.
  • In quick succession, Mapletree Logistics Trust announced the proposed acquisition of Acacia Ridge Distribution Centre at 338 Bradman Street Brisbane for A$114mm, in line with the most recent independent valuation. The initial yield at the transaction price is 4.9% (4.7% after accounting for transaction costs). This was a slight compression from the last transaction in Brisbane at 5.7% close to 2 years ago. The compression in yields is expected given the robust demand for warehouse properties in recent years, especially in Australia’s key states (Queensland, New South Wales and Victoria).
  • The property is purpose built with modern logistics specifications (55k sqm over 2 buildings on over 110,000 sqm of freehold land) and is leased to 3 local players with a WALE of 5.3 years. Approximately 84% of the GFA is leased to Woolworths Group to support the group’s operations in Queensland and Northern New South Wales. In our view, Woolworths is a quality tenant, and the remaining tenants are an ASX-listed digital marketing company and a local freight forwarder.

1HFY21 results stable (DPU of 4.1 cents; +1.2% y-o-y, +0.5% q-o-q).

  • Mapletree Logistics Trust reported 9.4% and 10.40% rise in revenues and net property income (NPI) to S$264.3m and S$237.7m respectively. The stronger performance was mainly driven by stronger revenues at its existing properties, fuelled by contributions from recent additions in FY20 and redevelopment of Ouluo Phase 2. This more than offset the loss of contribution from its 6 divestments and rental rebates incurred in the quarter that were granted to eligible tenants due to the COVID-19 pandemic.
  • Distributable income rose by 6.0% y-o-y to S$156.1m. DPU was 1.2% y-o-y higher despite the c.4.7% y-o-y increase in issued units. On a q-o-q basis, Mapletree Logistics Trust's 2Q20 DPU was slightly higher by 0.5% to 2.055 cents. See Mapletree Logistics Trust Dividend History.

Maintain BUY with higher target price of S$2.35.

Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2020-11-11
SGX Stock Analyst Report BUY MAINTAIN BUY 2.35 UP 2.200