Strong Quarter Y-o-y, Stay at BUY

• Mapletree Logistics Trust (SGX:M44U)’s 1Q23 (1 Apr 2022 to 31 Jun 2022) DPU was +5% y-o-y / flat q-o-q, driven by higher rental income from a larger AUM. The performance was in line with consensus, and slightly above our estimates.
• Our forecasts for Mapletree Logistics Trust are unchanged, although we see upside to earnings from potentially stronger-than-expected rental recovery, acquisitions and divestment gains.
• Mapletree Logistics Trust's valuations are undemanding at ~5% yield, backed by high DPU visibility, which is underpinned by resilient occupancy amid steady growth in demand, and improving rents in FY23E.

Stable Occupancy Overall, Set to Improve in China

• Mapletree Logistics Trust's portfolio occupancy was stable at 96.8% in 1Q23 (vs 96.9% in 4Q22) as higher occupancies in Japan and Hong Kong SAR, offset dips in Singapore, South Korea and China.
  • Occupancy in Singapore fell to 98.3% (from 99.0%) due to conversion of a single-user asset to a multi-tenanted property.
  • Occupancy in China was lower at 92.9% (from 93.1%) due to non-renewals in tier-2 cities (Guiyang, Changsha and Zhengzhou), but management expects this to improve at end-2Q23 as lockdowns ease after which occupancy should strengthen.

Leasing Strong, Rental Reversion +3.4%

• Leasing was strong and ~6% of its portfolio was renewed or replaced (vs ~5% in 4Q22). Lease expiry of single assets over FY23-24 are low at 2.1- 4.6% with WALE (by NLA) stable at 3.4 years (vs 3.5 years).
• Mapletree Logistics Trust's portfolio rental reversion was stronger at +3.4% (vs +2.9% in 4Q22), led by leases in Singapore (at +4.3%) with Amazon’s renewal at 5B Toh Guan Road East, India (+4.1%), Vietnam (+3.9%) and Japan (+3.7%). We expect reversions to remain positive across its key growth markets, and to strengthen in Australia and China’s tier-1 cities.

Sound Balance Sheet, Eyeing Deals and Divestments

• Mapletree Logistics Trust's gearing rose to 37.2% (from 36.8% as of end-Mar 2022) after completion of recent deals (in South Korea and China). As 80% of debt is on fixed rates, a further 50bps interest rate rise suggests a < 1% DPU impact.
• We estimate S$0.7-2.2b debt headroom (at 40-45% limit) to support acquisitions. Mapletree Logistics Trust's management is eyeing a S$2.5b deal pipeline but a low < 20% conversion rate, and continues to execute on its S$300-500m divestment plan.
• Our DDM-based target price for Mapletree Logistics Trust stays at S$2.15 (COE: 6.1%, LTG: 2.0%). Maintain BUY.

Source: Maybank Research - 22 Jul 2022