MLT – DBSV

Developments to take front seat

• Weak JPY impacting performance; DPU of 1.82 Scts in line
  
• Tapering acquisition assumptions; more development projects unveiled to extract value
  
• Maintain BUY with S$1.16 TP based on DCF; attractive yields of 6.5%-6.7%
  

Highlights

Weak JPY affecting performance. The depreciation of the JPY against the SGD resulted in Mapletree Logistics Trust (MLT) reporting a 0.6% and 1.3% decline in gross revenue and net property income to S$77.1m and S$66.6m respectively. Excluding the forex impact, topline would have increased by 3.6% instead. The stronger performance was largely attributable to contribution from the acquisition of Big Box in South Korea, supported by positive rental reversions of c.24%, coming mainly from its properties in Singapore/Hong Kong. Portfolio occupancy levels also improved sequentially to 98.7% (vs 98.2%). Distributable income came in 7.5% higher at S$44.5m (DPU of 1.82 Scts, 0.02 Scts from divestment gains), supported by lower interest rates of 1.9% achieved upon refinancing activities , while its JPY exposures are substantially hedged out for this financial year.

Our Views

More development projects to extract value. MLT continues to execute strongly through its development arm – the completion of its new 1m sqft ramp-up warehouse at Benoi Sector is on track to complete by 3QFY14 and will start contributing soon. In addition, the Manager has unveiled a new development project at 5B Toh Guan Road East, involving maximizing of the site’s plot ratio to 2.5x (from 0.93x), thereby creating an enlarged c600 sqft warehouse (the Manager expects to spend cS$100m on this development which we have factored in). In addition, the manager alludes to more of such value-enhancing redevelopment opportunities that can be executed upon in the medium term.

Tapering acquisition expectations. Acquisitions (3rd party and sponsor-related) are likely to remain more selective but the manager is understood to be working closely with the sponsor to tap its pipeline. Given a moderate acquisition outlook, we have tapered our acquisition assumptions to S$100m (from S$250m) over 2 years.

Recommendation

BUY; TP S$1.16. Despite a moderated growth outlook, we like the strategy of extracting value within its portfolio for growth which enables the portfolio to remain contemporary. Acquisitions from sponsor are likely to be re-rating catalysts for MLT. Maintain BUY, with a TP of S$1.16 based on DCF.