MapletreeLog prefers natural hedging

GIVEN the strength of the Singapore dollar, investors of Mapletree Logistics Trust (MLT) were keen to know more about its currency hedging policy, says Citigroup after hosting MLT on a non-deal road show in Europe.

‘Natural hedging remains its (MLT’s) preferred hedging strategy with local currency loans set up to offset currency fluctuations,’ commented Wendy Koh from Citigroup.

Ms Koh added that MLT has also hedged its exposure to the Hong Kong dollar, Japanese yen, Malaysian ringgit, and Korean won, resulting in 89 per cent of its amount distributable being hedged for FY2011. Other aspects that drew investors’ attention also included the impact of Japan’s recent earthquake on MLT assets.

Notably, only one of MLT’s 15 properties in Japan was damaged by the earthquake. With regard to the costs required to rectify the damaged property, the logistics real estate investment trust (Reit) guided that it should come in at about $3 million as opposed to the $9 million previously estimated.

On a more macro level, things have been looking good for the Reit as demand for logistics space has been robust, especially in Singapore and Hong Kong as occupancy rates improve.

In addition, rental reversions came in higher, up 5 per cent versus one to 2 per cent in the past.

With regard to future plans, MLT highlighted that it intends to adopt an acquisition strategy to focus on yield optimisation and growth. To jump-start this strategy, MLT’s lower yield assets are being divested to fund acquisitions of properties which generate higher returns.

Asset enhancement initiatives also seem to be on MLT’s cards as management continues to evaluate and identify properties for such purposes.

Citigroup currently has a ‘buy’ recommendation on MLT with a target price of $1.00. Yesterday the stock closed one cent higher at 91 cents.

Spotlight is on South Korea

KPPC Pyeongtaek Centre. Mapletree Logistics Trust (MLT) recently announced that it has signed a conditional sale and purchase agreement with Korea Port Processing Co. Ltd (KPPC) for the acquisition of KPPC Pyeongtaek Centre at a purchase price of approximately S$85.9m. The property comprises two blocks of dry goods warehouses with a total GFA of about 100,900 sqm. There is also potential for organic growth as it has yet to maximise its permissible plot ratio, which will yield an additional GFA of close to 20,000 sqm. The property provides an initial NPI yield of 8.6%. The vendor, KPPC, will lease the entire property for a period of 5 years with an annual rental escalation of 3.0%. MLT has stated that this acquisition marks an important milestone to entrench the trust into the South Korea market. The acquisition is expected to be completed by 3Q11. Given the sizeable acquisition, the contribution of South Korea to the total portfolio’s gross revenue is expected to increase from 2.7% to 5.6%. Consequently, KPPC will be the first Korean customer in MLT’s list of top ten tenants; thus further diversifying its tenant base. Assuming that the purchase price and other acquisition costs of the property are fully funded by debt, MLT’s gearing level will increase to about 41% (after taking into account all acquisitions and divestments announced to date).

Capital recycle play in action. MLT also announced on 31 May that it has completed the divestment of 9 Tampines Street 92 for a total consideration of S$12.8m. Approximately S$11.2m will be redeployed to partially fund the acquisition of Jian Huang Building. Recall that 39 Tampines Street 92 is still in the midst of divestment for S$14.7m. MLT has previously cited that the two properties have building specifications that are now outdated and no longer ideal for modern logistics operations. Given its limited growth potential, it believes that divesting these assets would be the best option to maximize returns. MLT expects the disposal gain to result in a one-time increase in FY11 DPU by 0.07- 0.09 S cents.

More acquisitions to come. Apart from Korea, MLT has also added that it is actively looking at acquiring a warehouse (60,000 sqm and 98% leased) in Malaysia from its sponsor. MLT should be able to complete the acquisition by this year. Going forward, its main acquisition focus continues to be in Singapore, Malaysia and South Korea. MLT has a proven track record of executing a virtuous cycle of accretive acquisitions and competitive fund-raising. It is also a favourable move to recycle proceeds into better-yielding assets. Factoring in contributions from the new acquisition, our fair value increased from S$1.00 to S$1.01. Reiterate BUY.

Acquisition-led growth story

• 1Q11 DPU of 1.55 Scts in line

• Acquisitions to power earnings growth in 2011, gearing of 39% is optimal as a cross-border REIT

• BUY and DCF-TP of S$1.07 maintained

DPU of 1.55 Scts in line. Mapletree Logistics Trust (“MLT”) reported a 21% and 19% growth in rental income and net property income to S$62.2m and S$54.7m respectively, largely attributable to contributions from new asset acquisitions completed during 2H10. Portfolio occupancy improved to 98.3% (from 98% in 4Q10) with increased take-up rates in Singapore & HongKong. NPI margins compressed slightly to 87.8% (vs 89% in 1Q10) owing to an enlarged portfolio and expenses incurred from the conversion of certain properties from single to multi-tenanted leases. Distributable income came in at S$37.5m (+22% yoy), translating to a smaller 3% yoy increase in DPU to 1.55 Scts due to enlarged share base.

Gearing of 39.4%, though higher than peers, is optimal in our view for its cross border exposure. MLT’s higher gearing of 39.4% compared wit S-REIT peers’ average c34% is justifiable, in our view, given its multi-jurisdiction exposure. The manager has taken higher debt levels overseas, acting as natural hedges against currency fluctuations and for tax efficiency purposes.

Manager expects to acquire from sponsor’s pipeline in FY11. More acquisitions are likely to feature in the coming months and will be the main earnings growth driver in FY11-12. Management is looking at a myriad of acquisition opportunites, deriving from possible sponsor’s injection on top of 3rd party assets. At current implied FY11 yield of 6.6%, any future acquisitions are likely to be value accretive. We have assumed S$300m worth of acquisitions in 2011, to be funded on a 35-65% debt-equity ratio.

BUY, DCF-based TP S$1.07 maintained MLT continues to offer an attractive growth story with strong tenant links and sponsor support from Mapletree Investments. Given its large cap status with visible growth pipeline, we find MLT’s premium FY11-12 yield of 7.3-7.5% attractive.

1Q11 DPU of 1.55 S-cents. Not stellar but stable results

1Q11 DPU of 1.55 S-cents. Mapletree Logistics Trust (MLT) reported a set of stable results on Thursday. 1Q11 gross revenue of S$62.2m was up 21.1% YoY and 2% QoQ. The yearly increase was mainly due to contributions from the 14 properties acquired in Singapore, Japan, Korea and Vietnam last year. The two acquisitions announced in Mar 2011 were only completed towards the end of 1Q11 and as such, the full effect of the income contributions will only be reflected from 2Q11. 1Q11 revenue was slightly below our expectation but within Bloomberg consensus. 1Q11 revenue met 22.3% of our full-year forecast and 23.8% of consensus FY11 revenue. Distributable income of S$37.5m was up 21.7% YoY and 1.9% QoQ. 1Q11 DPU is 1.55 S-cents, which is up 3.33% YoY but flat QoQ; this represents an annualized yield of 6.9%.

Portfolio Performance. As at 31 Mar 2011, MLT recorded portfolio occupancy of 98.3%, compared with 98.0% in 4Q10, boosted largely by Singapore, Hong Kong and China. However,1Q11 saw the occupancy rate of Malaysia fall from 99.2% to 96.3%. Meanwhile, a total of 81,500 sqm of space had been renewed or replaced, and this accounts for approximately 94% of the total NLA that was due for renewal in 1Q11. The weighted average lease term to expiry for the portfolio is about 6 years with approximately 70% of the leases expiring in 2014 and beyond. MLT also undertook a S$4m enhancement on Multi-Q Centre in South Korea, with the addition of a 3-storey warehouse next to the existing building, thereby increasing total gross floor area by 4,100 sqm. MLT has also identified another Singapore property with underutilized plot ratios and outdated specifications for redevelopment. It is currently firming up the preparations, which will increase the GFA by more than 70,000 sqm. MLT will make the announcement, likely by next month.

Further Acquisitions. MLT adds that it is actively looking at acquiring a warehouse (60,000 sqm and 98% leased) in Malaysia from its sponsor. MLT should be able to complete the acquisition by this year. Going forward, its main acquisition focus will be in Singapore, Malaysia and South Korea, but MLT remains cautiously optimistic on the outlook in Asia. MLT also believes that a significant portion of the future growth will come from its repeat customers. Currently, repeat customers account for 28% MLT’s gross revenue. Reiterate BUY with a reduced RNAV-derived fair value of S$1.00 (prev: S$1.03) on grounds of dampening prospects in Japan (constituted 23.3% of 1Q11 gross revenue.

MapletreeLog distributable income up 21.7%

Properties acquired in Singapore, Japan, Korea and Vietnam last year boost revenue by 21.1%

MAPLETREE Logistics Trust (MapletreeLog) posted a 21.7 per cent year-on-year rise in total amount distributable to $37.54 million for the first quarter ended March 31, 2011, up from $30.84 million.

Gross revenue rose 21.1 per cent to $62.2 million on the back of contributions from 14 properties acquired in Singapore, Japan, Korea and Vietnam in FY10. Net property income (NPI) was 19.4 per cent higher at $54.67 million, as were property expenses, which climbed 34.4 per cent to $7.57 million.

For the first quarter, it will pay out a distribution per unit (DPU) of 1.55 cents, versus 1.5 cents a year ago. The DPU will be paid on May 30.

MapletreeLog, which invests in income-producing logistics real estate and real estate-related assets in Asia, has a portfolio of 98 properties as at March 31, with a book value of about $3.57 billion. Its properties in Singapore, Hong Kong and Japan were the key contributors, accounting for close to 89 per cent of MapletreeLog’s NPI.

Occupancy rate in Q1 improved marginally to 98.3 per cent compared with 98 per cent in Q4. About 81,500 square metres of space – or 94 per cent of the total net lettable area that was due for renewal in Q1 – was renewed or replaced. The weighted average lease term to expiry for the portfolio is about six years with some 70 per cent of the leases expiring in 2014 and beyond.

‘We are currently firming up the redevelopment plan for one property in Singapore. Upon completion of its redevelopment, total gross floor area will increase by more than 70,000 sq m. While the property will not generate any income during the redevelopment period, the resultant yield will provide better returns to MapletreeLog in the long run,’ said Richard Lai, CEO of Mapletree Logistics Trust Management.

He went on to add that they are upbeat on the Asian economy, and that growth this year will continue to come mainly from acquisitions of yield accretive assets.

MapletreeLog closed at 91.5 cents in trading yesterday, up 1.5 cents.