• 1Q19 DPU accelerated by 3.7% y-o-y to 1.96Scts. 
• Portfolio metrics remain strong; more upside from acquisitions. 
• Low gearing level allows the REIT to pursue acquisitions. 
• Estimates raised to factor in acquisitions; Target Price lifted to S$1.53. 

Maintain BUY, Target Price Raised to S$1.53

Mapletree Logistics Trust (MLT) is back on the acquisition path. After its recent announcement to acquire a portfolio of modern logistics properties in Singapore, we remain excited on MLT’s growth prospects. Coupled with a stronger balance sheet post recapitalisation, improving organic growth outlook and a myriad of acquisitions, we believe that the REIT’s improved earnings prospects will translate into higher valuations going forward. 

We have raised our Target Price to S$1.53 to account for new acquisitions. BUY! 

Where We Differ: Market Is Not According MLT the Right Valuation

Our Target Price of S$1.53 is above consensus average of S$1.35. We believe that the street has not accounted for the improved fundamentals post acquisition and potential to surprise on the upside organically and through more acquisitions. 

1Q19 DPU accelerated to 3.7% y-o-y and we believe the momentum will continue in 2H19 with the potential completion of its acquisition of five warehouses in Singapore coupled with a visible acquisition pipeline from its Sponsor. 

Estimates Raised to Factor in Acquisitions

We have assumed in our estimates a fund raising exercise (c.S$233m) to part fund of the S$778m acquisition in Singapore, and distribution of gains from the sale of 7 Tai Seng Drive. Distribution projections are raised by up to 11%, while DPU estimates are raised by 2% on the back of a higher share base. 

Gearing to head to a more optimal 39%. 

Valuation

• We maintain our BUY call and raise our Target Price to S$1.53. The stock offers a total potential return of > 15%. 

Key Risks to Our View

• Acquisitions ramping up faster than expected. A faster-than-projected acquisition pace and/or a better-than-expected outlook for the Singapore warehouse market will translate into positive adjustments to our earnings estimates. 

What's New - Continues to Shine

1Q19 DPU +3.7% y-o-y to 1.96 Scts on improving portfolio performance.

Mapletree Logistics Trust (MLT)’s gross revenues and NPI grew by 10.1% and 11.1% y-o-y to S$105.4m and S$89.8m respectively, as improved performance from its existing portfolio and acquisitions in Hong Kong helped to offset the absence of income from the divestment of 5 properties completed over FY18 and 1Q19 (including 7 Tai Seng Drive). 

Finance cost increased by 20.7% y-o-y due to the higher borrowings to partly fund the acquisitions. The strong uplift in distributable income (+29.1% y-o-y) to S$60.9m in 1Q19 was also driven by higher operational performance, and partly boosted by the gains from sale of 7 Tai Seng Drive (S$1.9m over 12 quarters from 1Q FY19) and Toh Tuck Link (S$0.3m over 8 quarters from 2QFY18).

1Q19 DPU of 1.96 Scts (+3.7% y-o-y) formed 25.4% of our FY19F estimates and was in line.

Healthy occupancy, positive reversions.

Following the successful acquisition of 11 properties (50% interest) in China, which includes newly completed assets and thus carries a lower occupancy rate of 91%, MLT’s portfolio occupancy eased slightly on a sequential basis from 96.6% in 4Q18 to 95.7% in 1Q19. Including committed leases, occupancy rate would have been 97.8% for China and 97.1% for the MLT portfolio.

The uptick in occupancy for its existing portfolio was mainly led by improving take-up rates across MLT’s key markets of Singapore and Hong Kong (100% vs 96.6% in 4Q18).

Positive rental reversions averaged 2% in 1Q19, mainly from China, Malaysia and Hong Kong. Singapore’s was fairly flattish.

Borrowing costs crept higher but gearing improved.

Portfolio cost of debt nudged higher to 2.5% from 2.4% in 4Q18. Meanwhile, gearing improved to 36.4% (1Q19) from 37.7% (4Q18) as net divestment proceeds from 7 Tai Seng Drive were channeled towards the repayment of outstanding loans. The proportion of debt hedged via fixed rates remained high at 82% vs 78% in the previous quarter.

Earnings update to account for recent acquisitions and gains.

Our estimates are raised by 4%-8% to account for the

1. proposed acquisition of 5 warehouses in Singapore, funded by 30% equity (c. S$233m in our estimates) and
2. gains from 7 Tai Seng Drive (S$1.9m over 12 quarters), totaling S$22.8m in our estimates.

DPU is thus raised by 2% p.a. to 7.9 Scts in FY19F and 8.18 Scts in FY20F.

Source: DBS Research - 24 Jul 2018