MLT – OCBC

BUILDING SCALE THROUGH INVESTMENTS

• Performance to stay firm
  
• Weaker JPY to have limited impact
  
• Strong growth potential
  

Strength from diversification

Mapletree Logistics Trust (MLT) has one of the most diversified portfolios in the industrial REIT space, with 110 logistics assets located across seven countries in Asia. This allows MLT to capitalise on the robust demand for warehouse space from retailers and third-party logistics companies as a result of the region’s strong underlying fundamentals and robust domestic consumption, as well as to maintain a sturdy financial performance. Operational metrics have also proven its resilience thus far, as evidenced by the positive rental reversions of 8% and continued improvement in the portfolio occupancy in 2Q.

Likely limited impact from depreciating yen

For 3QFY13, we expect the positive trend to continue, driven by healthy rental and take-up rates and contributions from MLT’s past acquisitions. While the recent weakness in JPY against SGD (depreciated ~11.6% since start of Oct 2012 and 6.3% a month ago) may have an impact on its distributable income given that ~27% of its revenue was contributed by Japan historically, we note that ~90% of amount distributable in FY13 is hedged/ derived in SGD. Hence, we believe any impact from a depreciating yen is likely to be limited.

Multiple avenues for growth

We also like MLT’s growth potential. MLT has been able to pursue inorganic growth at a time when the cap rates in Singapore have become relatively competitive, thanks to its strong pipeline of overseas assets from its sponsor. We highlight that MLT has the right of first refusal to over S$400m worth of pipeline assets which are nearing completion/ completed. Such assets usually have comparatively higher yields than those in its existing portfolio, which would enhance its DPU. On top of this, MLT will also focus on capital recycling and asset enhancement/redevelopment. These initiatives are likely to boost MLT’s income and yield going forward. We maintain our BUY rating and S$1.25 fair value on MLT. At current price level, its current DPU yield of 6.1% is also higher than the S-REIT average yield of 5.9%.