• Divestment at attractive valuations
• Solid execution capabilities
• Positives likely priced in

Recent Divestment of Two Japan Properties Above Valuation

Mapletree Logistics Trust (MLT) recently announced the proposed divestment of two of its freehold properties (Zama Centre and Shiroishi Centre) in Japan to Godo Kaisha Asset Toshi Jigyo 4 Go for an aggregate sale consideration of JPY13.5b (~S$165.4m). This translates into an exit NPI yield of ~4.3% and an attractive premium of 32% and 10% above their latest combined valuation and purchase price of JPY10.2b and JPY12.3b, respectively.

MLT expects to recognise an estimated divestment gain of ~JPY234m (~S$2.9m) over the original purchase cost after providing for taxes and transaction related expenses. This gain will be distributed to MLT’s unitholders.

Acquired Ten Properties in FY17

Management was active on the acquisition front in FY17, acquiring ten properties valued at ~S$313m, with eight located in Australia and one each in Malaysia and Vietnam. Besides having a weighted average occupancy of 100%, the ten assets also provide MLT with a healthy initial weighted average NPI yield of 8.0%. MLT has also been rejuvenating its portfolio by embarking on AEIs and redevelopment projects to increase the specifications and attractiveness of its assets to unlock value for its unitholders.

Another proactive approach taken by MLT is the management of its single-user asset (SUA) leases, which account for only 2.9% of its lease expiries (by NLA) in FY18. This would mitigate the risks if the SUA leases were converted to multi-tenanted buildings.

Maintain HOLD

We factor in MLT’s Japan divestments in our model, and assume that the net proceeds would be largely used to pare down its existing debt. We also increase our occupancy assumptions for some of MLT’s properties. Overall, our FY18 and FY19 DPU forecasts are trimmed by 0.8% and 0.7%, respectively.

Given MLT’s stronger balance sheet and improved sentiment in the S-REITs space, we also lower our cost of equity assumption from 8.2% to 8.0%, which results in a slightly higher fair value estimate of S$1.15 (previously S$1.14). Nevertheless, we are maintaining our HOLD rating on MLT as we believe its solid execution capabilities as highlighted earlier and positives have already been priced in by the market.

Source: OCBC Research - 11 Jul 2017