STRONG EXECUTION

•Results in line

•Healthy lease profile

•Investment opportunities resurfaced

Consistent set of results.

Mapletree Logistics Trust (MLT) reported its 4QFY121 results last evening. NPI increased by 14.4% YoY to S$61.6m due to contributions from its acquisitions and organic growth (better rental and occupancy rates) from its existing portfolio. Distributable amount similarly grew by 12.2% YoY to S$41.3m, though impacted slightly by higher borrowing costs and other expenses. For the quarter, DPU stood at 1.70 S cents, up 9.7% YoY. This brings the total YTD DPU to 6.54 S cents, representing a yield of 7.6%. The results were within both our and consensus expectations, with YTD DPU forming 103.4%/97.6% of our/consensus DPU estimates.

Healthy portfolio performance.

Portfolio operating performance continues to be healthy, in our view. Overall occupancy rate was maintained at a high level of 98.8% (99.0% in 3Q). In addition, positive rental reversions of 16% for renewal/replacement leases were still seen during the quarter (9% rental reversions if conversion of 7 Tai Seng Drive to multi-tenanted building was excluded). As at 31 Dec, the weighted average lease to expiry was steady at ~6 years, with only 12.8% of its leases by NLA due to expire in FY13.

Reiterate BUY.

Going forward, management guided that MLT’s organic growth is likely to slow as the portfolio is operating at near full capacity and as the economic climate remains murky in the near term. We also note that there was a mild slowdown in the enquiry level, although average occupancy rate is expected to remain stable. On the M&A front, however, MLT revealed that more investment opportunities have resurfaced. Above-than-industry-average leverage of 41.4% remains our key concern, but refinancing risk is a non-issue with MLT’s recent refinancing of its JPY9b loans. Maintain BUY with higher fair value of S$1.10 (S$1.07 previously) after rolling our RNAV valuation to 2012.

MapletreeLog DPU rises 9.7% in Q4

MAPLETREE Logistics Trust (MLT) saw distributable income increase 12.2 per cent to $41.3 million for the fourth quarter ended Dec 31, 2011, from $36.8 million the year before.

However, distribution per unit (DPU) grew at a slower rate due to a larger number of units from an equity fund-raising exercise back in Q2 2010. Q4 distribution per unit (DPU) was 1.70 cents, 9.7 per cent higher than last year’s 1.55 cents. The Q4 DPU includes a distribution of 0.03 cent from divestment gains.

Its Q4 gross revenue climbed 17.8 per cent year-on-year to $71.9 million in the quarter ended Dec 31, mainly due to contributions from four properties acquired in the financial year and stronger contributions from existing assets on the back of positive rental reversions and improved occupancies.

With a larger asset base and a greater number of multi-tenanted properties, property expenses also climbed 43.9 per cent to $10.3 million from $7.2 million previously.

Consequently, MLT’s net property income for the period grew 14.4 per cent to $61.6 million.

On a year-to-date basis, MLT’s gross revenue grew 22.6 per cent to $268.3 million from $218.9 million a year back, largely due to contributions from 14 properties acquired back in FY2010, in addition to four other assets acquired in FY2011.

Not surprisingly, borrowing costs also rose by $5.4 million due to funds required for acquisition activities.

This resulted in the total amount distributable increasing by 21.9 per cent to $158.6 million compared to $130.1 million last year.

This translates to a DPU of 6.54 cents – including 0.06 cent for the period from the divestment gains of 9 Tampines and 39 Tampines.

Gearing-wise, aggregate leverage as at end last year was about 41 per cent, largely unchanged from the prior quarter, and with ‘little refinancing risk’ this year, said management.

Overall portfolio occupancy also remained at a healthy 98.8 per cent while the weighted average lease to expiry was around six years, implying stable cash flows and regular income streams in the periods ahead.

MLT invests in a portfolio of income producing logistics real estate assets which encompasses 98 properties valued at a book value exceeding $3.7 billion as at Dec 31.

Yesterday, the counter closed 1.5 cents, or 1.7 per cent, lower at 86 cents.

During a teleconference yesterday evening, cost was noted to be a key challenge going forward, especially in countries such as China due to rising wage levels.

However, with a continued focus on ‘yield optimisation by active asset and lease management’, Richard Lai, chief executive officer of the manager, remains confident that MLT will continue to deliver decent returns.

On the acquisitions end, Mr Lai noted that they are ‘not rushing’ into any particular deal and will maintained a ‘disciplined approach’.

A blue chip yield of 8.0%

At a Glance

• 3Q11 DPU of 1.69 Scts in line (73% of FY11 estimates)

• Financial metrics remain strong, gearing of 41% is comfortable

• Maintain BUY and S$1.07 TP based on DCF

Comment on Results

3Q11 results in line. Revenues and net property income grew by 25% and 24.% to S$68.3m and S$58.9m respectively, benefiting from an enlarged portfolio. MLT had acquired 14 properties in 2010 and an additional 4 assets since the start of 2011. Occupancy levels remain well supported at 99% as of 3Q11. Distributable income increased by a higher 30% to S$40.9m as a result of lower than proportionate increase in borrowing costs and hedging of its HKD income streams, which mitigated the impact of the HKD depreciation against the S$. DPU increased by lower 10% to 1.69 Scts due to an enlarged share base. DPU includes 0.03 Scts from divestment gains of 9 and 39 Tampines.

The group continues to see active leasing enquiries across all geographies and healthy occupancy levels. In 3Q11, MLT achieved organic growth of 6% yoy – rental renewals at up to 12%, while 3 properties (which were converted from single tenanted to multi-tenanted buildings) reportedly achieved higher renewal growth of between 30-50%. The trust also announced that they have obtained permission to redevelop 21/23 Benoi Sector to a maximum plot ratio of 2.5x (from the current 1.4x), potentially adding 70k sqm to the portfolio.

Financial metrics remain strong; debt expiry profile extended to 3.7 years. To date, MLT has renewed a substantial portion of its JPY loans expiring in 2011 (JPY 17.3bn or S$281m) at a competitive rate for another 6 years, lengthening its debt maturity profile to 3.7years. Gearing ratio stands at 41%. While this is higher than industrial peers, it remains comfortable in our view, given its strong sponsor backing and that its portfolio is unencumbered. We note that MLT has taken local currency loans as a natural hedge against currency fluctuations and these provide tax shelters for its overseas exposure.

Recommendation

BUY, S$1.07 TP maintained. Yields of close to 7.7-8.0% are attractive in our view; re-rating catalysts likely to hinge on the manager’s ability to continue sourcing accretive acquisitions that will grow distributions. TP is maintained at S$1.07 as we roll forward our valuations to FY12F.

Another display of robustness

Within expectations. Mapletree Logistics Trust (MLT) produced a good set of 3Q11 results, which was within our expectations. Revenue grew by 25.4% YoY to S$68.3m, driven by contributions from accretive acquisitions, positive rental reversions of 22% and improvement in occupancy rate to 99% (98% in 3Q10). While NPI increased at a slightly slower pace of 23.7% due to higher number of multi-tenanted buildings and repair works, amount distributable to unitholders was up 29.7% on lower other expenses and partial distribution from divestment gains of 9 and 39 Tampines. This translates to a DPU of 1.69 S cents (+9.7% YoY due to enlarged unit base), or an annualized yield of 7.8%. For 9M11, revenue and DPU tallied S$196.4m and 4.84 S cents respectively. These formed 75.6% and 77.8% of our full-year estimates (74.7% and 71.2% of consensus), respectively.

Strong capital management. As at 30 Sep, the group’s aggregate leverage was at 41.3% (relatively unchanged from 40.6% in 2Q), still healthy in our view. Subsequent to 3Q, management also updated that it had successfully refinanced JPY17b (S$281m) of debt maturing in 2012 by extending its maturity to 2018. This substantially improved its average debt duration from 2.7 to 3.7 years and brought down its proportion of debt maturing 2012 from 31% to 14%. Hence, we do not foresee any major refinancing risk in the coming year.

Diversified portfolio to provide stability. Going forward, MLT cautioned that the Asian economies are not likely to escape unscathed with a deepening euro zone debt crisis and stagnating US economy. As such, it will remain watchful of the evolving environment and maintain a disciplined approach towards investment activities. However, management added that it is still seeing active customer enquiries and high rate of renewal/replacement of expiring leases thus far (88% of NLA due for renewal has been renewed YTD). Moreover, it expects its diversified portfolio and healthy weighted average lease to expiry of six years to provide relative stability in its operating performance.

Maintain BUY. MLT is also focusing on asset management initiatives to identify growth opportunities and optimize yield. On this front, the group identified 21/23 Benoi Sector as a suitable redevelopment opportunity (which may potentially add 70,000 sqm GFA to its portfolio). While more details will only be announced in due course, we are positive on this development as it clearly shows MLT’s proactive approach to enhance value. We maintain our BUY rating on MLT with revised fair value of S$1.07 (S$1.06 previously), after factoring in the 3Q results.