MLT – OCBC

Another round of acquisitions

Another round of acquisitions. Mapletree Logistics Trust (MLT) intends to acquire three properties in Vietnam, Japan and Singapore for a total consideration of S$83.5m. This is MLT’s first Vietnam purchase, where it sees the opportunity for “strong growth as [Vietnam] increasingly becomes a major manufacturing hub and consumption market”. The purchases come on the heels of the S$145m in assets acquired over 4Q09-1Q10 utilizing funds from the November private placement. MLT’s portfolio now consists of 87 properties in seven countries.

Sponsor pipeline in play. Natural Cool Lifestyle Hub, the distribution centre in Singapore, is being acquired by way of a put and call option agreement with a wholly-owned subsidiary of SGX-listed Natural Cool Holdings Ltd [NOT RATED]. The two warehouses in Vietnam (Mapletree Logistics Centre) and Japan (Sendai Centre) are being acquired by way of a conditional sale and purchase agreement with MLT’s sponsor Mapletree Investments Pte Ltd. MLT has thus begun to dip into the S$300m logistics development projects in the sponsor pipeline that are completed or nearing completion; other assets in this pool are located in Vietnam, China and Malaysia.

Fully debt funded for now. The three properties are being acquired at net property income yields of 6.8% (Japan), 8.05% (Singapore), and 10.3% (Vietnam) or a weighted NPI yield of 7.9% (existing portfolio: 6.2%). The manager intends to finance all three acquisitions fully by debt in the interim, which would bring the REIT’s leverage up to 40.2% debt-to-assets compared to 38.6% as of 31 Mar; this is within MLT’s medium-term target of 45%. MLT estimates that, on a pro forma annualized basis, the purchases add 0.157 S cent to DPU (2.62%). The accretion drops to 0.039 S cent or (0.64%) by the manager’s estimate if the assets were 40% debt funded instead.

Valuation. The purchases are expected to be completed by Sep; we have updated our earnings estimates accordingly. The acquisitions were as per prior guidance and are likely, in our view, to be the first of several transactions over the next two years. Those acquisitions are likely to be financed using a combination of debt and equity. We continue to price in a further S$200m equity issue in our valuation of the REIT, but reflect the lower unit price in our issue price assumption. We also increase our discount rate assumption by 100 bps to incorporate increased macro-economic and regional risks. This reduces our fair value estimate from S$0.93 previously to S$0.84, or an estimated total return of 11.6%. Maintain BUY.