ACQUIRES TWO WAREHOUSES IN SOUTH KOREA

• Acquisitions to be DPU-accretive

• Funding via proceeds from perpetuals

• Leverage around 39% post acquisition

Acquisition of two quality warehouses in South Korea

Mapletree Logistics Trust (MLT) announced last Friday evening that it had entered into separate Sale and Purchase agreements to acquire two cold storage warehouses in South Korea, namely Jungbu Cold Warehouse (JCW) and Dooil Cold Warehouse (DCW), for an aggregate purchase price of KRW63.5b (~S$71.3m). This marks MLT’s maiden entry into South Korea’s growing cold storage warehouse market. The two assets, which have a total GFA of 38,800 sqm, are each equipped with over 20 cold chambers that offer temperature control ranging from -5°C to -40°C, and are located in Gyeonggi-do, the largest logistics cluster in the country.

Attractive NPI yields and lease terms

We note that each of the properties will be leased back to the respective vendors for a term of 10 years. The lease terms also incorporate a built-in rental escalation of 3% per annum. Altogether, this provides strong and regular cash flows, as well as organic growth to MLT. In addition, both acquisitions are expected to be DPU accretive, according to management. Specifically, JCW is expected to generate an initial NPI yield of 9.5%, while DCW a yield of 9.9%. These returns are significantly higher than the implied NPI yield of 8.2% for its existing South Korea portfolio of dry warehouses, due to the value-adding building specifications of acquisition assets.

Leverage likely to reach 39% post acquisition

We understand that the acquisitions are expected to complete by Apr 2012. Funding for the investments is expected to come from the proceeds raised from the recent issuance of its S$350m perpetual securities. In addition, MLT’s aggregate leverage post all acquisitions announced to date is likely to reach ~39%. We now factor in the two acquisitions into our forecasts. This raises our FY13-14F revenue and distributable income by 2.4-3.9%. Our RNAV-based fair value, however, remains at S$1.20. Maintain BUY on MLT.

MLT buying two Korean cold storage warehouses

MAPLETREE Logistics Trust (MLT) is acquiring two cold storage warehouses in South Korea for $71.3 million, marking a maiden entry into South Korea’s growing cold storage warehouse market.

Its trust manager, Mapletree Logistics Trust Management (MLTM), has entered into separate sale-and-purchase agreements to acquire these properties located in Gyeonggi-do.

‘These acquisitions are in line with our strategy to scale up our presence in South Korea to a large and profitable asset platform,’ said MLTM chief executive Richard Lai.

MLTM agreed to acquire Jungbu Cold Warehouse, comprising three blocks of cold storage warehouses with three auxiliary buildings, from Chungbu The First Logistics Co for 33.5 billion won (S$37.6 million). This property has a gross floor area of 20,800 sq m.

The other property, Dooil Cold Warehouse, will be acquired from Dooil Cold Store Co Ltd and Woosung Cold Store for 30 billion won. This warehouse comprises three single-storey cold storage warehouses with three auxiliary buildings and has a gross floor area of 18,000 sq m.

Both acquisitions, expected to be completed by April, are likely to be accretive in terms of distribution per unit (DPU) and will bring the total number of cold storage warehouses in MLT’s portfolio to six.

Each of these properties will be leased back to the respective vendors for a term of 10 years with a built-in rental escalation of 3 per cent per annum.

‘We are optimistic about the cold supply chain industry, not just here in South Korea, but also in other parts of Asia where we operate in,’ Mr Lai said. ‘Factors such as rising affluence and higher demand for frozen and packaged food products due to convenience and changing lifestyle all bode well for the industry.’

Based on their respective purchase prices, Jungbu Cold Warehouse is expected to generate an initial net property income yield of 9.5 per cent and Dooil Cold Warehouse is expected to generate a 9.9 per cent yield. This compares to a 8.2 per cent implied property yield from MLT’s existing South Korean portfolio of dry warehouses.

MLTM intends to fund these acquisitions with the proceeds raised from a recent issuance of Singapore dollar-denominated perpetual securities.

With the two new properties, the gross revenue contribution from South Korea to MLT’s total portfolio will increase from 5 per cent to 7 per cent, Mr Lai said.

Including all announced acquisitions to date, MLT’s portfolio will increase to 109 properties with a book value of about $4.1 billion.