Mapletree Logistics Trust - UOB Kay Hian 2022-05-24: Switching Emphasis To Redevelopment Projects


Mapletree Logistics Trust - Switching Emphasis To Redevelopment Projects

  • Mapletree Logistics Trust has embarked on the redevelopment of 51 Benoi Road into a six-storey ramp-up logistics property with GFA of 865,000sf. It plans to amalgamate and redevelop two newly-acquired parcels of leasehold industrial properties and its existing Subang 3 and 4 properties at Subang Jaya, Selangor into a six-storey ramp-up logistics megahub with GFA of 1.4m sf.
  • Mapletree Logistics Trust's share price has corrected 25% from its recent peak and FY23 distribution yield has improved to 5.7%. Maintain BUY. Target price: S$2.23.

MLT is Ssrengthening portfolio through redevelopments.

  • It is a difficult environment to grow via acquisitions due to compressed capitalisation rates, higher interest rates and volatilities in the equity market. Thus, we expect Mapletree Logistics Trust (MLT, SGX:M44U) to place more emphasis on redevelopment projects in the near term:
    1. 51 Benoi Road. Mapletree Logistics Trust has received approval from Jurong Town Corporation (JTC) to redevelop 51 Benoi Road into a six-storey ramp-up logistics property with modern specifications. The redevelopment will provide uplift to GFA by 2.3x to 80,360sqm (865,000sf). Existing tenants are being decanted and demolition is expected to commence in 3QFY23. The redevelopment is scheduled to complete by 4QFY25. Management estimated yield on cost at 6.2% based on total development cost at S$232m. The property is located in close proximity to Joo Koon MRT station along the East-West Line and FairPrice Hub retail mall.
    2. Developing the first modern ramp-up logistics property in Subang Jaya. Mapletree Logistics Trust has acquired two parcels of leasehold industrial properties at Subang Jaya, which are located next to its existing Subang 3 and 4 logistics properties, for RM65.6m (S$21.2m). It plans to amalgamate the four industrial properties into a huge 492,000sf site to be redeveloped into a six-storey ramp-up megahub with 1.4m sf of logistics space, five times their current size. Management estimated yield on cost at 7% based on total investment cost of RM500m (S$157m). The redevelopment will not contribute to income in the initial years and is expected to complete by 2027.

Completed a small acquisition in Singapore.

  • Mapletree Logistics Trust completed the acquisition of 9 Changi South Street 2, a four-storey temperature controlled warehouse with ancillary office, for S$24.5m in Dec 21. Mapletree Logistics Trust is in talks with an international third-party logistics player to be the anchor tenant at 9 Changi South Street 2. The newly-acquired 9 Changi South Street 2 is adjacent to Mapletree Logistics Trust’s existing 15 Changi South Street 2.
  • Continuing to focus on the Asia Pacific region. Mapletree Logistics Trust will pursue acquisitions of logistics properties in developed markets, such as Australia, South Korea and Japan, from third-party vendors. It will also explore opportunities to acquire logistics properties in Vietnam and India, tapping on pipeline from sponsor Mapletree Investments. Given that capitalisation rates are already compressed, management is open to acquiring logistics properties that have not stabilised (undertaking some leasing risks).

Value creation through asset recycling.

  • Mapletree Logistics Trust's management intends to step up the pace of asset recycling. There could be opportunities to divest logistics properties at non-prime locations in Singapore, Malaysia, South Korea and Australia at attractive cap rates.

Prudent capital management.

  • Mapletree Logistics Trust’s aggregate leverage is healthy at 36.8% as of Mar 22. Debt maturity is well-staggered with average debt maturity of 3.8 years. Average cost of debts was stable at 2.2%.
  • 79% of Mapletree Logistics Trust’s total borrowings are hedged to fixed interest rates. Management estimated that every 25bp increase in base interest rates will result in decrease in distributable income of S$0.65m and drop in DPU of 0.01 cents.

Leasing demand remains resilient

  • Leasing demand remains resilient despite uncertainties created by the Russia-Ukraine war.
    • Mapletree Logistics Trust’s logistics properties in Singapore benefit from growth from e-commerce and inventory stockpiling.
    • In Hong Kong, it enjoys firm rental rates and high occupancies due to favourable demand-supply dynamics.
    • Japan, South Korea and Australia provide stable income streams due to increased e-commerce penetration.
    • Tenants in China have become more cautious due to slowdown in economic growth and negative impact from the zero tolerance policy to suppress outbreak of COVID-19.

MLT's 4QFY22 results were above expectations.

  • Mapletree Logistics Trust reported DPU of 2.268 cents for 4QFY22 (+5.0% y-o-y). During the quarter, it completed the acquisition of 12 properties in China on 20 Jan 22 and three properties in Vietnam on 26 Jan 22. Mapletree Logistics Trust recognised revaluation gains of S$572m driven by logistics properties in Australia, Hong Kong and mainland China. NAV per unit increased 11.3% y-o-y to S$1.48.
  • Stable occupancies. Portfolio occupancy declined 1.1ppt q-o-q to 96.7% in 4QFY22. Occupancy for Singapore eased 0.3ppt q-o-q to 97.8% as 51 Benoi Road was decanted in preparation for redevelopment. Excluding 51 Benoi Road, occupancy for Singapore was higher at 99%. Occupancy for China eased 2.8ppt q-o-q to 93.1% due to acquisition of 12 properties in Jan 22, which has lower occupancy of 91.1%.
  • Mapletree Logistics Trust maintained positive rent reversion of 2.9% in 4QFY22 (India: +5%, Vietnam: +4%, South Korea: +3.9%, China: +3.1%, Hong Kong: +2.9%, Malaysia: +2.7% and Singapore: +1.7%). Retention rate was healthy at 79%.

Mapletree Logistics Trust - Earnings forecast & recommendation

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-05-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.23 UP 2.080