Still going strong

• Resilient results backed by strong cashflows

• Operational strength intact; 37% gearing is within management’s comfortable range

• Maintain BUY, TP S$1.14

Highlights

Quarter to June12 – in line. Gross revenues and net property income grew by 17.1% and 18.4% y-o-y respectively to S$77.1m and S$67.5m. Performance remained relatively stable q-o-q, underscored by a resilient portfolio. The stronger y-o-y performance was largely brought about by the contribution from new acquisitions – 7 properties in Japan and a further 4 in Korea and Malaysia that were completed in recent months. Borrowing costs increased by 19.4% due to an enlarged portfolio coupled with marginally higher average interest costs (2.4% vs 2.2% a year ago). As a result, distributable income increased by 18% to S$45.8m. Distributable income to unitholders (after perpetual security holders) amounted to S$41.1m (+5.9% y-o-y), translating to a DPU of 1.7 Scts.

Our View

Operational strength continues. Occupancy rates remained firmed at 99% due to strong take-up in Singapore, with rental reversions averaging at 10% higher vs preceding levels (largely in Singapore but is expected to normalise in the coming years as more supply comes on stream). To date, MLT has renewed close to 42% of total NLA that is due to expire in the current financial year, further boosting its strong income visibility.

Gearing relatively stable at 37%. Compared to a quarter ago, gearing inched up to 37% due to additional debt taken to finance recent Korean acquisitions. We estimate that gearing would have been higher at c40% after adjusting for the treatment for the perpetuals (in accordance to Moody’s guidelines). Nevertheless, metrics are healthy, with interest cover at 5.8x, and an average debt duration of 4.4 years.

Recommendation

BUY, TP S$1.14 based on DCF. Stock offers a potential yield of close to 7%, which is higher than average peers and is attractive given its resilient earnings stream. The manager continues to look at opportunities to optimise portfolio performance through potential redevelopment or asset enhancement. Acquisitions will likely continue to feature supported by the sponsor’s pipeline as an avenue for growth in the medium term.

ROBUST 1QFY13 PERFORMANCE

•Results within expectations

•Continued improvement in leases

•Focus on active management

Stable 1QFY13 results

Mapletree Logistics Trust (MLT) delivered NPI of S$67.5m (+18.4% YoY) and distributable income of S$45.8m (+18.0%) for 1QFY13. Expectedly, the strong performance came chiefly from its recent overseas acquisitions and enhanced operational performance. A total of S$4.7m from distributable income will be paid to perpetual securities holders, leaving S$41.1m for unitholders. As a result, DPU for the quarter came in at 1.70 S cents (+6.0% YoY). This is largely in line with both our and consensus expectations, as it formed 24.2% and 24.6% of the respective full-year forecasts.

Expecting positive FY13 performance

During the quarter, we note that MLT’s portfolio occupancy rate improved from 98.7% as at 31 Mar to 99.0% amid strong take-up rates in three of its Singapore multi-tenanted assets. In addition, the REIT continued to enjoy positive rental reversions of 10% on average (albeit lower than 12% achieved in prior quarter). We understand that 12.7% of its leases by NLA are due for renewal in FY13, of which ~42% has been successfully renewed/ replaced to-date. Hence, we remain positive on its full-year financial performance.

Maintain BUY

Going forward, MLT expects business sentiments to remain cautious in view of the slowing growth in Asia and concerns over the Eurozone debt crisis. While it is expecting its portfolio assets to stay resilient, management intends to focus on strengthening its fundamentals through active asset and lease management and prudent capital management. In our view, MLT is certainly in a favourable position, having a strong weighted average lease to expiry (WALE) of 6 years, still healthy aggregate leverage ratio of 37% and no immediate refinancing needs (long debt duration of 4.4 years). Maintain BUY with unchanged fair value of S$1.19 on MLT.

Stable quarter

1Q13 was boosted by positive rental reversions and completed acquisitions. Management appears to be adopting a defensive stance as it continues to trade rentals for occupancy. Stability remains underpinned by its long WALE and high occupancy.

1Q13 DPU meets our estimates and consensus at 24% of our full-year estimates. Our forecast factors in S$150m of acquisitions for FY13. We keep DPUs, DDM target price (disc. rate: 8.6%) and rating unchanged pending analyst briefing. Maintain Outperform on the catalyst from acquisitions.

1Q13 NPI up 18% yoy

Underpinned by a long WALE of six years and high occupancy, MLT’s portfolio remains one of the most stable among S-REITs. 1Q13 NPI was up 18% yoy and 10% qoq as improved NPI margins added to a 17% growth in top-line from organic growth and acquisitions. While net profit was hit by a S$15.1m foreign exchange loss, the impact was mitigated as 85% of its distributable amount was hedged. DPU grew by 6% yoy after interest and perpetuity coupon payments and 2% qoq excluding distribution of divestment gains last quarter.

Trading rentals for occupancy

Rental reversions remained commendable despite moderation to 10% from 12% last quarter. This is at the top end of management’s previous guidance of 5-10%, in line with its stance of trading rents for higher occupancy in the face of macro-headwinds. Occupancy strengthened to 99.0% from last quarter’s 98.7%, benefitting from good take-up at three of its local multi-tenanted assets, which were converted from single-user assets last year.

Capital management and acquisitions

Management remains on the lookout for acquisitions, although its top priority continues to be in active asset and lease management. Asset leverage is unchanged at 37%, still conducive for debt-funded acquisitions. We have assumed S$150m of acquisitions for FY13.

LIKELY TO REPEAT ITS SUCCESS

•Recent additions to contribute positively

•Well positioned for growth

•Attractive total expected returns

Good results to continue

Mapletree Logistics Trust’s (MLT) financial performance for the trailing four quarters ending 31 Mar 2012 had been outstanding, buoyed by a slew of yield-accretive acquisitions and healthy organic growth from its existing portfolio. In the year ahead, we expect MLT to deliver again, as it continues to optimize its portfolio yield and invest in quality assets. YTD, we note that MLT has acquired close to S$390m worth of properties with initial NPI yields of 6.2-9.9%. The last of the announced acquisitions (Fuji warehouse and Celestica Hub in Malaysia) was completed in May, and is expected to contribute positively to its distributable income going forward.

In a sturdy financial position

As at 31 Mar, MLT’s aggregate leverage was at a comfortable 35.2% mark, bolstered by the issuance of S$350m perpetual securities and asset revaluation gain of S$113.0m (~3% increase). Even with the completion of all committed acquisitions, we estimate its gearing ratio to inch up to only ~37% – a level we deem is still healthy. Notably, its weighted average debt duration has also been extended from 2.2 years in prior year to 4.2 years as a result of management’s proactive capital management initiatives. Hence, we believe MLT is well positioned to pursue its growth strategy, with minimal refinancing baggage to carry through the coming year.

Maintain BUY

MLT’s unit price has also performed well, raking up a return of 17.2% YTD as opposed to 13.0% gain in the benchmark index. While the REIT was sold down by as much as 4.9% from its peak on 10 Jul, we note that it was due to a sale in Alliance Global Properties’ 5.7% stake in MLT via a block trade, and not a drastic change in its fundamentals. At current price, MLT still offers an attractive upside potential and respectable FY13F yield of 7.1%. We maintain our BUY rating on MLT, with a revised fair value of S$1.19 (S$1.20 previously) after fine tuning our model to incorporate the exact acquisition completion dates.

Busy quarter

5QFY12 was boosted by positive rental reversions and completed acquisitions. Resilience should stem from Asian logistics demand, its long WALE and geographical diversification.

5Q12/FY12 DPU meets our estimate and consensus at 20%/99% of FY12. MLT has changed its year-end to Mar from Dec. We tweak our DPU by 1-6% for FY12-13 factoring the change in year-end but keep our DDM target (discount rate: 9.0%) pending its briefing. Maintain Outperform.

Stable occupancy, stronger rents

Portfolio stability was underpinned by a long WALE of six years and high occupancy of 98.7%. 5Q12 NPI was up 12% yoy on organic growth and acquisitions. NPI was flat qoq due to the depreciation of the HK$ and yen, although the DPU impact was buffered by hedging. Occupancy was slightly lower at 98.8% in Singapore (5QFY11: 99.4%) after the conversion of two single-tenanted assets into multi-tenanted buildings. Rental reversions remained healthy at 12%, led mainly by Singapore and Hong Kong, albeit slightly lower than 4Q’s 16%. Rental reversions should remain positive, with most expiring leases in 2012 coming from Singapore and Hong Kong.

Acquisitions

Management acquired 11 properties for S$365m during the quarter. While the acquisition momentum could moderate, MLT still has ROFR to its sponsor’s >S$300m greenfield pipeline and continues to look at AEI and lease management to optimise yields. We have factored in S$150m of acquisitions for FY13. Asset leverage will be fairly healthy at 37% following its perpetuity issuance, acquisitions and a 3% portfolio revaluation − still conducive for debt-funded acquisitions.

Capital management

Balance sheet strengthened with the extension of a ¥17bn loan maturing in Apr 12 to Apr 16. Average cost of borrowing is up 10bp after this but remains fairly low at 2.4%.