Mapletree Logistics Trust - UOB Kay Hian 2021-11-24: Sizeable Acquisition Accompanied By Sizeable Equity Fund-Raising

MAPLETREE LOGISTICS TRUST (SGX:M44U)

Mapletree Logistics Trust - Sizeable Acquisition Accompanied By Sizeable Equity Fund-Raising

The proposed acquisition of 17 modern Grade-A logistics properties in China, Vietnam and Japan at a total acquisition cost of S$1,467.5m is massive, much larger than Mapletree Logistics Trust’s previous acquisitions. The portfolio includes seven logistics properties in China that are still undergoing stabilisation, whereby in-place rents and occupancy rates are below current market levels.

The sizeable equity fund raising could put Mapletree Logistics Trust's share price under pressure. Maintain HOLD. Target price: S$2.08.

Tapping the large and growing consumption market in China. Mapletree Logistics Trust (SGX:M44U) has proposed to acquire 13 high-quality and modern logistics facilities built to Grade-A specifications in China with an agreed property value at RMB4,111.7m (S$870.0m).
China is an attractive logistics market due to the expansion of the middle class population and rising e-commerce adoption, which drives higher demand for logistics space. There is also a scarcity of Grade-A warehouses in China. The acquisition adds three new provinces to Mapletree Logistics Trust’s geographical coverage and expands its network to 43 assets in 29 cities.

Seven of the logistics properties in China are newly-completed and still undergoing stabilisation, thus operating below current market levels in terms of in-place rents and occupancy rates. Mapletree Overseas Holdings will provide income support of RMB20.9m (S$4.4m) over the 12 months after the completion of the acquisition to ensure that the logistics properties in China provide net property income (NPI) of RMB196.5m (S$41.6m).

Mapletree Logistics Trust has proposed to acquire three high-quality and modern logistics facilities built to Grade-A specifications in Vietnam with an agreed property value at US$95.9m (S$129.9m). Vietnam is a beneficiary of the structural trend of supply chain diversification. It benefits from strong inflow of foreign investment and manufacturing projects, which underpin and drive demand for logistics space. The three logistics properties are located in the provinces of Bac Ninh and Binh Duong, which serve Hanoi and Ho Chi Minh City respectively.
Key tenants for the China and Vietnam logistics properties include global third-party logistics (3PL) such as DHL and Damco (Maersk) and fast growing regional 3PLs like SF Express and Best. The NPI yield for the logistics properties in China and Vietnam is 5.1%.

Mapletree Logistics Trust has proposed to acquire a freehold 5-storey dry logistics facility with a gross floor area (GFA) of over 1.7m sf with an agreed property value at ¥35,000m (S$416.3m). The acquisition will scale up Mapletree Logistics Trust’s presence in Greater Nagoya, an attractive logistics market strategically located between Greater Tokyo and Greater Osaka. The logistics property is close to Nagoya City, Nagoya Port and Centrair Airport. It enjoys easy access to the Shin-Meishin Expressway which provides excellent connectivity to Kyoto and Osaka in the west and Hamamatsu and Shizuoka in the east. The new modern ramp-up facility will be Mapletree Logistics Trust’s largest asset in Japan.
The NPI yield for the logistics properties in Japan is 4%. Key tenants are a subsidiary of a leading car manufacturer and third-party logistics players, such as Nohi Transport, Marubeni Logistics and Hitachi Transport System.

The proposed acquisitions will increase Mapletree Logistics Trust’s assets under management (AUM) by 13.5% to S$12.2b. They are estimated to be accretive to pro forma FY21 DPU by 2.2% and NAV by 4.4%.
Launched equity fund-raising. Mapletree Logistics Trust has launched an equity fund-raising to raise S$700m comprising:
1. Private placement of up to 215.1m new units at S$1.860 to S$1.911 to raise S$400m.
2. Non-renounceable preferential offering of up to 163.4m new units at S$1.82 to S$1.87 to raise S$300m.
Sponsor Mapletree Investments has agreed to receive consideration units in satisfaction of part of the acquisition price (S$200m) for the China properties. Overall, the funding mix between equity and debt is about 60:40.

The acquisitions of logistics properties in China and Vietnam constitute interested person transactions. An EGM will be held in due course to obtain approval from unitholders.
We have kept our existing DPU forecasts unchanged.
Maintain HOLD call 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%).
Catalyst: accretive acquisitions to rejuvenate and reposition towards modern specifications logistics facilities, domestic consumption and e-commerce.
See

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-24

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.080 SAME 2.080