• 1QFY16 DPU down 2.6% YoY
• Positive rental reversions of 5%
• Operating landscape still challenging

1QFY16 results within expectations

Mapletree Logistics Trust (MLT) started FY16 on a muted note, recording a 2.6% YoY dip in its 1Q DPU to 1.85 S cents. This was the second consecutive quarter of YoY DPU fall. Gross revenue rose 5.0% to S$85.1m due largely to full contribution from six properties acquired during FY15.

1QFY16 DPU and gross revenue formed 24.5% and 24.2% of our full-year forecasts, respectively, within our expectations. MLT continued to be impacted by cost pressures associated with ongoing conversions of its singleuser assets (SUAs) to multi-tenanted buildings (MTBs). Portfolio occupancy was relatively stable at 96.6%, while positive rental reversions of 5% were achieved.

Looking overseas for growth opportunities

Given the headwinds facing MLT in Singapore, management has actively sought inorganic growth opportunities overseas. It recently completed one acquisition each in South Korea (Jun) and Vietnam (Jul) at initial NPI yields of 8% and 10%, respectively. Another proposed premium freehold cold store warehouse acquisition in Sydney, Australia, is currently pending completion at a purchase consideration of A$253m (~S$261.5m), or initial NPI yield of 5.6%.

In our view, this acquisition does not appear cheap, but would diversify MLT’s income streams and add stability given the long WALE of 19 years with built in annual escalations. MLT’s gearing ratio will increase to 38.1% by end FY16, based on our estimates. We believe this leaves little debt headroom ahead for more significant acquisitions, and MLT would likely have to utilise equity financing for future large scale acquisitions.

Maintain HOLD

We ease our FY16-FY17F NPI margin assumptions by 0.4-0.7 ppt on account of cost pressures, but raise our DPU forecasts for FY16 and FY17 by 1.5% and 3.6%, respectively, as we input MLT’s recent acquisitions in our model. However, we also raise our cost of equity assumption slightly from 8.4% to 8.6% given the challenging operating landscape faced by MLT and downside risks from the 17 SUA leases due to expire in FY16. This causes our fair value estimate to fall marginally from S$1.14 to S$1.13. Maintain HOLD.

Source: OCBC Research - 22 Jul 2015