Results in Line, Stay at HOLD

• MAPLETREE LOGISTICS TRUST (SGX:M44U)’s logistics assets stabilised further in 3Q20 as DPU rose 2.1% y-o-y on its larger AUM with the addition of seven high-specs assets and a China divestment as of end-2019. However, we see limited near-term demand growth visibility (except for M’sia, Vietnam) on macro uncertainties.
• We fine-tuned DPU estimates after its Dec-2019 SGD250m equity fund-raising, which has bolstered its balance sheet for further deals, and our target price rises slightly (COE: 6.7%, LTG: 2.0%) to SGD1.75. Stay at HOLD.
• Our top industrial-sector pick remains the business-park-focused Ascendas REIT (SGX:A17U), which trades at higher 5.6% yields with stronger DPU growth prospects and the balance sheet for acquisitions.

Stronger Rental Reversions in HK, M’sia and Vietnam

• Mapletree Logistics Trust's 3Q20 revenue and NPI rose 0.3% y-o-y and 3.9% y-o-y respectively, as higher contribution from its existing properties helped offset the divestment of five Japanese assets in 1Q20. We see rising revenue and NPI contribution from its recent acquisitions in M’sia (one property), Vietnam (two), and China (four, at 50% interest) which were completed during the quarter.
• Portfolio occupancy rose slightly q-o-q from 97.5% to 97.7%, mainly due to better SG occupancies, which helped offset lower occupancies in S.Korea and China. Rental reversion was at +1.2% (versus +1.8% in 2Q20) led by positive reversions in HK (+3.5%), Vietnam (+3.2%), and M’sia (+2.3%).
• Mapletree Logistics Trust remains optimistic on the logistics market in M’sia, Vietnam, and China’s first-tier cities (with reversions at +2.9%).

Low Demand Growth Visibility in SG, HK

• Management maintained a cautious tone in view of macro headwinds, as tenants hesitate on renewals and capacity expansion in SG and HK. Its WALE is lower at 4.4 years (from 4.6 years), but single-user asset expiries remain low at 1.6-3.9% from FY20-22E. We see a pick-up in rents only from late 2020, on easing supply.
• Its leverage was 37.5% as of end-Dec 2019 after the SGD250m private placement exercise and should improve to 37.1% as divestment proceeds reduce borrowings. We estimate SGD0.3-1.1b debt headroom (on 40-45% limits).

Upside on Potential Capital-recycling Efforts

• Its CEO was upbeat on its acquisition growth pipeline, which is backed by its sponsor assets (at 4.6m sqm GFA). Management has earmarked SGD500.0m in asset divestment opportunities. Strong liquidity and demand especially for its China assets resulted in a divestment of its Waigaoqiao Logistics Park for SGD64.0m at a 2.4% cap rate.

Source: Maybank Kim Eng Research - 21 Jan 2020