Mapletree Logistics Trust - UOB Kay Hian 2021-07-21: 1QFY22 Slowdown In Pace Of Acquisitions

MAPLETREE LOGISTICS TRUST (SGX:M44U)

Mapletree Logistics Trust - 1QFY22 Slowdown In Pace Of Acquisitions

Mapletree Logistics Trust reported good 1QFY22 results with DPU growth of 5.7% y-o-y, which is in line with expectations. It achieved positive rental reversion of +2.2%. Portfolio occupancy improved 0.3ppt q-o-q to 97.8%. The pace of acquisitions is expected to slow down as Mapletree Logistics Trust is relying mainly on third-party vendors in FY22. Acquisitions from its sponsor pipeline are expected to resume in FY23.

Mapletree Logistics Trust's distribution yield is unattractive at 4%. Maintain HOLD. Target price: S$2.08.

Mapletree Logistics Trust (SGX:M44U) reported DPU of 2.161 cents (+5.7% y-o-y) for 1QFY22, which is in line with expectations. 1QFY22 DPU included distribution from divestment gains of S$1.8m, which is lower compared with S$4.7m in 1QFY21. Excluding divestment gains, Mapletree Logistics Trust's 1QFY22 DPU would have increased 10.3% y-o-y.

Gross revenue and net property income (NPI) grew 23.7% and 21.3% y-o-y respectively in 1QFY22 due to higher revenue from existing properties, accretive acquisitions completed in FY21 and the redevelopment of Ouluo Logistics Park Phase 2 in Shanghai completed in 1QFY21.
Growth was moderated by the depreciation of the Hong Kong dollar and Japanese yen by 3.7% and 6.2% y-o-y respectively against the Singapore dollar (Mapletree Logistics Trust has hedged about 75% of the amount distributable for the next 12 months).
Mapletree Logistics Trust achieved positive rental reversion of +2.2% for new and renewed leases in 1QFY22, a slight moderation compared with 2.4% in 4QFY22. The positive reversions were driven by Vietnam (+5.3%), Hong Kong (+2.9%) and Singapore (+1.6%).

Occupancy for South Korea improved 1.2ppt q-o-q to 98.4% due to new/renewed leases at Pyeongtaek and Anseong. Occupancy for China improved 1.2ppt q-o-q to 96.5% due to new/renewed leases at Changshu, Changsha and Chengdu. Occupancies were maintained at 100% in Australia, Malaysia and Vietnam.

Aggregate leverage has improved 0.2ppt q-o-q to 38.2% due to lower translated foreign currency loans as the Japanese yen, Hong Kong dollar, Australian dollar and Malaysian ringgit depreciated against the Singapore dollar. Average cost of debts is maintained at 2.2%. Mapletree Logistics Trust has sufficient committed credit facilities of S$667m to refinance debts of S$159m due in FY22.

The global economy has gradually recovered. However, the pace of re-opening and recovery could be dampened by the spread of the new Delta variant of COVID-19. Demand for logistics space remains resilient but tenants with exposure to the retail sector are cautious. Mapletree Logistics Trust will focus on maintaining stable occupancies, giving priority to tenant retention and adopting a prudent approach for capital management.

According to CBRE, China’s logistics rents increased 0.6% q-o-q in 1Q21 after a sizeable correction in 2020. Vacancy dipped 1ppt q-o-q to 13.8%. Unfortunately, new supply is expected to reach over 6m sqm over the next three quarters.
Vacancy is expected to fall below 15% as supply recedes in 2022. Thus, it is more conducive for Mapletree Logistics Trust to acquire logistics properties in China from sponsor Mapletree Investments in FY23 when rents have stabilised.

Mapletree Logistics Trust will explore acquisitions of logistics properties from third-party vendors in Australia and South Korea. It is targeting acquisitions worth S$400m from third-party vendors in FY22.
Comparatively, Mapletree Logistics Trust completed the acquisition of 18 modern logistics properties across six countries in Australia, China, India, Japan, South Korea and Vietnam and the remaining 50% stake for 15 properties in China in FY21, which are worth a total of S$1.6b.

Mapletree Logistics Trust was granted the option to acquire 9 Changi South Street 2 in Singapore from a third-party vendor for a purchase price of S$24.5m. The property is located at the eastern part of Singapore where there is limited supply. It is easily accessible by the East Coast Parkway and in close proximity to Changi Airport (about 7km). It is a temperature-controlled warehouse and will attract demand for storage of high-value and time-sensitive goods, such as electronics and pharmaceutical. It has long remaining land tenure of 33 years.

Mapletree Logistics Trust will evaluate the feasibility of two redevelopment projects:
1. 9 Changi South Street 2, which is located adjacent to Mapletree Logistics Trust’s existing property at 15 Changi South Street 2. The two properties could potentially be amalgamated and redeveloped into a larger logistics property.
2. Redevelopment of 51 Benoi Road into a six-storey ramp-up logistics property with modern specifications.

Maintain HOLD rating on Mapletree Logistics Trust with target price at S$2.08. Our valuation is based on DDM (cost of equity: 6.0%, terminal growth: 2.0%).
See
Catalyst: Accretive acquisitions to rejuvenate and reposition towards modern specifications logistics facilities, domestic consumption and e-commerce.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-07-21

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.080 SAME 2.080