Mapletree Logistics Trust

Kim Eng on 28 Nov 2012

Buying Mapletree Wuxi Logistics Park. Mapletree Logistics Trust (MLT) recently announced that it intends to acquire Mapletree Wuxi Logistics Park (MWLP) from its sponsor for CNY116m (SGD22.8m) with an initial NPI yield of 8%. The purchase will be funded by debt and gearing is expected to increase marginally to 37.3% upon completion. Following this, we estimate that MLT still has debt headroom of SGD197m before hitting an aggregate leverage ratio of 40%.

Likely to be yield-accretive. MWLP is currently leased to reputable local and international companies, including Wuxi Hi-tech, Kerry Logistics, Fiege International Freight Forwarder and Konoike, with typical
2-3 year lease term. We expect MLT to complete the acquisition by end- March 2013 with an initial passing rent of SGD0.40 psf per month (or CNY0.73 psm per day). At the existing 2QFY3/13 portfolio yield of 6.5% and fully debt-funded, we think this acquisition will be yield-accretive.

30 Woodlands Loop divestment is off. MLT also said that the divestment of 30 Woodlands Loop to Accenovate Engineering Pte Ltd will not be completed. JTC Corporation has informed that the buyer’s application to purchase the property was not approved as it did not meet the evaluation criteria (value-add etc). Had the transaction gone through, MLT would have booked a net disposal gain of ~SGD4.96m, given that the sale consideration for this property was SGD15.5m. A-REIT encountered a similar disapproval for the divestment of Goldin Logistics Hub on 26 Nov and we suspect that these may be “soft” government attempts to put a lid on the already overheated industrial property prices.

Acquisition hotspots. MLT has previously opined that it will focus more on acquiring assets in China and South Korea, and less in Japan. We understand that there is a scarcity of modern logistics facilities in China but with only six properties (excluding MWLP), we doubt that MLT can scale fast enough to stand against big boys like Global Logistic Properties, which thrive on “network effect” and operational synergies.

Trading yield looks tight for further compression. From our estimates, the implied cap rate for MLT (based on 2QFY3/13 results) is 6.1%. The counter currently trades at 6.4% FY3/13 DPU yield, which we believe is almost near the end of its yield-compression cycle. MLT has risen 12% since our BUY call in Jun 2012 when we initiated coverage. For now, maintain HOLD with a TP of SGD1.14. We prefer A-REIT (TP: SGD2.65) which has more room for yield compression.