MLT – DBSV

Acquisitions to drive earnings

• Resilient 3Q15 results
  
• Meaningful acquisition prospects in medium term
  
• Downgrade to HOLD, TP S$1.27
  

3Q15 results in line. Mapletree Logistics Trust (MLT) continued to deliver a sustainable set of results in 3Q15. Revenues and net property income came in at S$82.9 m (6% y-o-y, 2% q-o-q) and S$62.5m ( 3% y-o-y, 1% q-o-q). The stronger performance was mainly due to contribution from the acquisitions of six properties and positive rental reversions of c.9% which more than offset (i) the lower portfolio occupancy rates (c.96.9% vs 97.2% in 2Q15) due to newly converted multi-tenanted properties, and (ii) loss of income from 5B Toh Guan road as it undergoes AEI. Distributable income grew 3% y-o-y to S$46.2m, translating into a DPU of 1.87 Scts. YTD DPU of 5.65 Scts forms 75% of our forecast.

Moderating prospects dampened by conversions of singleuser properties. Faced with a competitive operating outlook, MLT has done well in managing its leases and maintaining a high occupancy rate of c.96.9% with average reversions of 9.0%. Looking ahead, we expect downward pressure on occupancies from (i) downtime due to further conversions of multi-tenanted properties (estimated that half of the 16 single-tenanted properties will be converted) to increase inFY16 across its major markets. Rental reversions are expected to further moderate owing to heighted supply completions. In terms of inorganic growth, pipeline from sponsor remains highly visible but we note that meaningful growth is likely to come only in the medium term. In the meantime, MLT might look at recycling its assets through divestments to maximise value and redeploy proceeds to higher yielding assets.

Downgrade to HOLD on valuations, TP of S$1.27 as we roll forward valuations. We believe that at a P/Bk NAV of 1.3x, a forward yield of 6.1-6.4% reflectsinvestors’ high confidence in MLT’s earnings resilience and management execution ability on growth. However, it is near our revised TP of S$1.27 as we roll forward valuations. Given limited upside to our price objective, we downgrade our call to HOLD.