• Mapletree Logistics Trust’s 3QFY3/19 DPU was in line with consensus and our forecasts, driven by contributions from completed redevelopment and acquisitions.
• Rental reversion of +4.5% continued positive trend while occupancy was stable at 97.7%. However, there was a slight hiccup in China portfolio.
• We maintain our ADD call with a slightly higher Target Price of S$1.44.

3QFY3/19 Results in Line

• MAPLETREE LOGISTICS TRUST (SGX:M44U)'s 3Q19 DPU of 2.002 Scts (+5.0% y-o-y) represented 25%/26% of consensus and our forecasts. This was supported by a 25.9% increase in NPI y-o-y due to contributions from the redevelopment of Mapletree Ouluo Logistics Park Phase 1 and acquisitions in Singapore, Australia, Hong Kong and Korea. This was partially offset by one divestment in 1Q19.
• Mapletree Logistics Trust’s 9M19 DPU of 5.917 Scts (+4.2% y-o-y) was in line at 78% of our FY19 forecast.

Rental Reversions Continue Positive Trend; Stable Occupancy

• Rental reversion was +4.5%, mainly driven by Hong Kong, China, Singapore and Vietnam. This will be the 10th straight quarter with positive rental reversions.
• Portfolio occupancy inched up to 97.7% (97.6% in 2Q19). This was driven by new leases in Singapore, Shatin 3 in Hong Kong and Iljuk in South Korea.

Large Tenant Lowers Space Requirement in China

• Occupancy in China fell to 95.8% (98.3% in 2Q19) mainly due to JD.com giving up 50% of its space (c. 500,000 sq ft) in Zhenjiang; Mapletree Logistics Trust will receive compensation for this.
• Mapletree Logistics Trust has also backfilled some of the vacancies with smaller logistics players at higher rates. Management said that leasing from large Chinese e-commerce players tends to be more volatile especially in tier 2 cities with larger supply of logistics properties.
• To ensure the Chinese portfolio stays resilient, we expect Mapletree Logistics Trust’s to focus on acquiring properties along transport nodes with good access to end consumers in cities.

Balance Sheet Remains Healthy

• Mapletree Logistics Trust’s balance sheet remains robust with aggregate leverage ratio at 38.8% (38.1% in 2Q19). This was due to loans drawn to fund acquisitions in Australia and South Korea. Cost of debt increased to 2.7%; 85% of total debt is hedged in fixed rates (80% in 2Q19) while 88% of distributable income is hedged into/derived in SGD.
• We continue to expect Mapletree Logistics Trust to divest some assets to increase the debt headroom portfolio rejuvenation.

Maintain ADD With a Target Price of S$1.44

• We maintain our ADD call and increase our DDM-based Target Price to S$1.44 as we roll forward our valuations and adjust our DPU forecasts in FY19 and FY20 by +0.3% due to the partial distribution of capital gains from the divestment of 531 Bukit Batok St 23.
• We continue to like Mapletree Logistics Trust’s focus on domestic consumption and portfolio backed by robust occupancy and positive rental reversions.
• Further upside could come from acquisitions while downside risks include trade tensions filtering down to domestic consumption.

Source: CGS-CIMB Research - 22 Jan 2019