MLT – DBSV

Acquisition-led growth story

• 1Q11 DPU of 1.55 Scts in line

• Acquisitions to power earnings growth in 2011, gearing of 39% is optimal as a cross-border REIT

• BUY and DCF-TP of S$1.07 maintained

DPU of 1.55 Scts in line. Mapletree Logistics Trust (“MLT”) reported a 21% and 19% growth in rental income and net property income to S$62.2m and S$54.7m respectively, largely attributable to contributions from new asset acquisitions completed during 2H10. Portfolio occupancy improved to 98.3% (from 98% in 4Q10) with increased take-up rates in Singapore & HongKong. NPI margins compressed slightly to 87.8% (vs 89% in 1Q10) owing to an enlarged portfolio and expenses incurred from the conversion of certain properties from single to multi-tenanted leases. Distributable income came in at S$37.5m (+22% yoy), translating to a smaller 3% yoy increase in DPU to 1.55 Scts due to enlarged share base.

Gearing of 39.4%, though higher than peers, is optimal in our view for its cross border exposure. MLT’s higher gearing of 39.4% compared wit S-REIT peers’ average c34% is justifiable, in our view, given its multi-jurisdiction exposure. The manager has taken higher debt levels overseas, acting as natural hedges against currency fluctuations and for tax efficiency purposes.

Manager expects to acquire from sponsor’s pipeline in FY11. More acquisitions are likely to feature in the coming months and will be the main earnings growth driver in FY11-12. Management is looking at a myriad of acquisition opportunites, deriving from possible sponsor’s injection on top of 3rd party assets. At current implied FY11 yield of 6.6%, any future acquisitions are likely to be value accretive. We have assumed S$300m worth of acquisitions in 2011, to be funded on a 35-65% debt-equity ratio.

BUY, DCF-based TP S$1.07 maintained MLT continues to offer an attractive growth story with strong tenant links and sponsor support from Mapletree Investments. Given its large cap status with visible growth pipeline, we find MLT’s premium FY11-12 yield of 7.3-7.5% attractive.