MLT – OSK DMG

Needs More Injections From Sponsor

Mapletree’s 2Q15/1H15 distribution per unit (DPU) rose 3.3%/4.4% YoY to 1.88/3.78 cents, or at 25/51% of our full-year forecast. In Singapore, the leasing environment has become more challenging due to tighter regulations on the use of industrial space, such as recent changes that were made to JTC Corp’s subletting policy. Without further sponsor injections, we believe its growth prospects are unexciting. Assume

coverage with NEUTRAL and a SGD1.22 DDM-based TP (1.7% upside).

• 2QFY15/1HFY15 (Mar) results in line. Mapletree Logistics Trust (Mapletree) posted a 3.3%/4.4% YoY rise in 2QFY15/1HFY15 DPU, meeting 25%/51% of our full-year estimate, aided by contributions from Mapletree Benoi Logistics Hub and 9% positive rental reversions mainly from Hong Kong, Singapore and Malaysia. The REIT has about 8.8% of its leases (in terms of net leasable area (NLA)) due for renewal for the rest of FY15. The all-in-financing cost for 2QFY15 remained unchanged QoQ at 2.0%, with an average term of debt of 3.3 years (1QFY15: 3.4 years). According to its interest rate sensitivity analysis, its DPU would decline by ~0.5%, or 0.009 SG cents each quarter as a result of a 25bps increase in interest rates.
  
• Portfolio remains robust. Its portfolio occupancy rate stayed healthy at 97.2%, with some downtime due to the conversion of single-user assets to multi-tenanted buildings. Leasing activities remained stable in most of Mapletree’s markets, with some weakness in China – although this was offset by stronger performances in Singapore and HK. We note that reversions have also slowed to 9% last quarter from a high of 24% a year ago. Net property income margins are also on the decline, dropping to 84.2% in 2QFY15 from 86.4% in 2QFY14.
  
• Rekindling its growth engine. We forecast that Mapletree’s DPU could grow at an unexciting CAGR of 1.4% over FY14-17F. This, however, could be boosted by further asset injections by its sponsor, which has 17 more sizeable logistics developments in Asia, representing more than half of the total NLA in its portfolio of properties. Until then, we assume coverage with a NEUTRAL. Our DDM-derived TP of SGD1.22 (CoE: 7.1%, TG: 1%) implies a 1.7% upside from its current share price.