Mapletree Logistics Trust has entered into a conditional share purchase agreement with its sponsor Mapletree Investments Pte Ltd to acquire Mapletree Logistics Hub Tsing Yi in Hong Kong. The purchase consideration is ~HK$4.8b (S$834.8m), representing a discount of 2.7% to the average of two independent valuations on the property.

This asset is an 11-storey modern ramp-up warehouse with high quality building specifications and a NLA of 148,065 sqm. It is one of only 14 modern warehouses in Hong Kong and currently has a committed occupancy of 100%, with tenants including Ever Gain, Adidas and HKTV.

The proposed acquisition is expected to contribute an initial NPI yield of 5.7%, higher than the average NPI yield of MLT’s existing Hong Kong properties (4.5%) and the ~4% cap rates of warehouses in Hong Kong. Funding is expected to come from a mixture of debt and equity.

MLT also expects to redeem S$350m of its existing perpetual securities (callable on 19 Sep 2017), with plans to issue new perpetual securities at a likely lower distribution rate of 4%.

Based on an illustrative new unit issuance price of S$1.15 for the equity fund raising exercise and cost of debt of 2.75%, there would be forecasted DPU accretion of 1.7% after the acquisition and redemption of the perpetual securities.

We have a HOLD and S$1.15 fair value estimate on MLT but will be reviewing our assumptions.

Source: OCBC Research - 29 Aug 2017