MLT – OCBC

Stellar 4Q10 results by our 2011 top S-REITs pick

Stellar 4Q10 results. Mapletree Logistics Trust (MLT) reported a set of stellar 4Q10 results last evening, with mostly double-digit growth figures. 4Q10 gross revenue of S$61m was up 20.1% YoY and 11.9% QoQ. Net property income of S$53.8m rose 19.8% YoY and 13.0% QoQ. Distributable income of S$36.8m was up 15.8% YoY and 16.9% QoQ. Its results were boosted by positive contributions from recent acquisitions, lower vacancy rates and further positive rental reversions across MLT’s portfolio. As at 31 Dec 2010, MLT recorded portfolio occupancy of 98%. 4Q 2010 also saw a further increase in the occupancy rate of Malaysia from approximately 95% to 99%.

Most prolific industrial REIT acquirer. For FY 2010, MapletreeLog continued to focus on acquiring yield accretive assets that complement its portfolio. During the year, MapletreeLog completed 14 acquisitions in Singapore, Japan, South Korea and Vietnam. It now has 96 properties, comprising 54 properties in Singapore, eight in Hong Kong, six in China, 11 in Malaysia, 14 in Japan, two in South Korea and one in Vietnam. The diversification in terms of geography and customer mix further adds stability and resilience to the portfolio. These acquisitions are yield accretive with NPI yields ranging from 7% to 10%. Singapore, Hong Kong and Japan remained the key contributors to the portfolio, contributing close to 90% of MLT’s NPI.

Still compelling. In line with our OVERWEIGHT rating for the Industrial REITs subsector, we think MLT will continue to ride on Asia’s recovery cycle and benefit from positive rental reversions in FY11-FY12. Asia is expected to lead the industrial recovery due to increasing trade flows and domestic consumption in China (+Hong Kong) and Vietnam, which constitute 25% of MLT’s NPI. MLT has a proven track record in executing a virtuous cycle of accretive acquisitions and competitive fund-raising. Going forward, MLT is seeking to capitalise on the growth potential of the Middle East, India and Indonesia through acquisitions and working with the Sponsor in greenfield developments. Mapletree Investments and Itochu also plan to develop logistics built-to-suit projects of approximately US$300-500m over the next 3-5 years, which will be offered to MLT on a right-of-first refusal basis, further providing MLT with a pipeline of potential assets for future acquisitions. The manager also believes that a significant portion of the future growth will come from its repeat customers; and will continue to invest in and expand customer relationship and cater to their real estate needs throughout Asia. Currently, repeat customers account for 25% MLT’s gross revenue. Maintain BUY with an increased RNAV-derived fair value of S$1.03 (prev: S$1.00; total return of 11.42%).