• 1QFY20 DPU +3.5% YoY
• Positive rental reversions of 1.8%
• Portfolio occupancy down slightly to 97.6%

1QFY20 Results In-line With Our Expectations

Mapletree Logistics Trust (MLT) reported an in-line set of 1QFY20 results. Gross revenue and NPI jumped 13.6% and 18.2% to S$119.8m and S$106.1m, respectively, with the latter forming 25.4% of our FY19 forecast. Topline growth was driven by redevelopment projects and acquisitions, but partially offset by divestments coupled with a weaker AUD, RMB and KRW relative to the SGD.

The adoption of SFRS(I) 16 led to lower land rent by S$2.8m and thus a stronger NPI growth than revenue growth. However, the SFRS(I) 16 has no impact on the total amount distributable to unitholders. DPU of 2.025 S cents represented growth of 3.5% and this accounted for 25.3% of our full-year forecast.

Operating Metrics Largely Stable

MLT’s overall rental reversions came in stable at +1.8% (FY19: +2%). This was largely driven by China, Hong Kong and Vietnam. There was a slight QoQ decline in occupancy rates in Singapore (-0.9 ppt), Hong Kong (-1.2 ppt) and South Korea (-0.6 ppt), but partially offset by an improvement in China (+0.9 ppt), such that overall portfolio occupancy had a mild dip of 0.4 ppt to 97.6%.

With the uncertain macroeconomic environment, MLT noted that customers have become more cautious on renewals and capacity expansion, although overall leasing demand for warehouse space has been resilient to-date.

Valuations Stretched as at 22 Jul Close

We keep our forecasts unchanged, but lower our risk-free rate assumption from 2.3% to 2.0%. Consequently, our fair value estimate increases from S$1.38 to S$1.40. Based on Bloomberg consensus estimates, MLT is currently trading at a blended forward distribution yield of 5.1% (as at closing price on 22 Jul), which is 2.4 standard deviations (s.d.) below its 8-year average yield of 6.7%.

Forward P/B comes in at 1.38x, which is 2.9 s.d. above its 8-year mean of 1.08x. Although the Singapore government 10-year bond yield has also come down from a high of 2.65% in Oct 2018 to 1.95% currently, we note that MLT’s yield spread has compressed to 314 bps, which is also tight as this is 1.9 s.d. lower than the 8-year mean spread of 464 bps.

Source: OCBC Research - 23 Jul 2019