• 1QFY17 DPU flat YoY
• Weighted average rental reversion of -6%
• HOLD with higher FV

1QFY17 results within expectations

Mapletree Logistics Trust’s (MLT) 1QFY17 results came in within our expectations. Gross revenue grew 5.3% YoY to S$89.6m and formed 24.7% of our FY17 forecast. This was driven largely by organic growth from Hong Kong and Japan and contribution from acquisitions, but partially offset by lower revenue from Singapore. NPI rose 5.7% to S$75.2m, which translates into a NPI margin of 84.0% (+0.3 ppt YoY).

This was MLT’s first positive YoY growth in its NPI margin since 4QFY13, following 12 consecutive quarters of margin pressure. DPU was flat at 1.85 S cents, and accounted for 25.1% of our full-year projection.

South Korea the drag on rental reversions

MLT managed to renew/replace 98% of leases expiring in 1QFY17. However, portfolio weighted average rental reversions came in at -6%, with South Korea the drag. This was due to negative reversion for its property at Pyeongtaek Port upon the expiry of the master lease. Excluding this, MLT’s rental reversion would have been 3% (ranging between 1% and 11%). Overall portfolio occupancy declined slightly from 96.2% (as at 31 Mar 2016) to 95.4%, attributed to dips in Singapore, Hong Kong, China and Malaysia.

Gearing lowered to 35.7% following perpetual securities issuance

Following MLT’s recent issuance of S$250m 4.18% fixed rate perpetual securities in May this year, its gearing ratio was lowered from 39.6% (as at end-FY16) to 35.7%, as part of the net proceeds were temporarily deployed to pare down its SGD borrowings. However, as MLT also recently proposed to acquire four warehouses in Australia and one warehouse in Malaysia, its gearing is expected to increase to 37.4% once the acquisitions are completed.

We factor these developments in our model, and also lower our risk-free rate assumption from 3.0% to 2.4% given our view that the interest rate environment is likely to stay accommodative amid uncertainties in the global economy. Correspondingly, our fair value estimate is bumped up from S$1.02 to S$1.04. Maintain HOLD.

Source: OCBC Research - 26 Jul 2016