Deepening in China, Malaysia and Vietnam

• Mapletree Logistics Trust (SGX:M44U) is scaling up again on its higher-growth China, Malaysia, and Vietnam portfolio, with the latest acquisition of nine high-specs assets and the remaining 50% in its China properties, which should raise its NLA by 24.2% and AUM by 11.5%.
• Beyond the +1.3% DPU and +6.6% NAV boost, rising e-commerce demand and pandemic-induced supply chain diversification plans should underpin the assets’ long term growth upside.
• Mapletree Logistics Trust's 2Q21 DPU, up 1.5% y-o-y, was in line to both consensus’ and MKE’s estimates, and as such we keep our forecasts intact, pending deal closure.
• With 20% return to our DDM-based SGD2.40 Target Price (COE: 5.4%, LTG: 2.0%), we reiterate BUY on Mapletree Logistics Trust.

Another Stable Quarter for Mapletree Logistics Trust

• Mapletree Logistics Trust's revenue and NPI rose 8.3% y-o-y and 8.9% y-o-y with higher contributions from existing assets, acquisitions and the Ouluo Phase 2 redevelopment.
• Portfolio occupancy improved from 97.2% to 97.5%, reflecting stronger occupancies except for a slight dip in HK (from 99.9% to 99.8%).
• Rental reversion was +1.5%, down from +1.9% in 1Q21, mainly contributed by its leases in HK (+2.0%), China (+2.4%), Japan (+1.0%), and Vietnam (+4.3%).

Acquires Portfolio at 5.2% NPI Yield

• Mapletree Logistics Trust announced a SGD1.09b deal to acquire nine high-specs modern logistics assets - seven in China and one each in Malaysia and Vietnam, together with the remaining 50% interest in 15 China properties from its sponsor at 5.2% NPI yield. The properties boast a committed occupancy of 94.7% and a 2.3-year WALE (by NLA), with 91% of leases supported by occupiers serving their thriving domestic consumer markets and e-commerce tenancies contributing 58% of gross revenues.
• We expect tight supply and positive demand-led fundamentals to drive medium term rental growth, whilst strengthening Mapletree Logistics Trust’s network connectivity, as post-deal, its multi-location tenants would rise to 42% of its gross revenue, from 25% in 2015.

Deal Is DPU, NAV Accretive

• Mapletree Logistics Trust's leverage is expected to fall from 39.5% to 37.1%, given the proposed funding structure, with SGD600.0m in new equity and SGD300.0m in acquisition units to its sponsor.
• Debt headroom at SGD1.1b (45% limit) on our estimates is ample to fund further deals, as management looks to add another SGD200-400m from third-parties in Australia, S.Korea, Malaysia, Vietnam and Japan.

Source: Maybank Kim Eng Research - 20 Oct 2020