In dire need of growth

• FY3/14 results in line with our and market expectations.
  
• Japan portfolio still a drag on top line; aggregate revenue and NPI for the past four quarters fell 17% YoY.
  
• FY3/14-17E DPU CAGR to be an unexciting 0.3% without concrete growth catalysts. Maintain SELL with TP of SGD1.00.
  

FY3/14 results largely in line

MLT reported a mere 0.9% YoY growth in FY3/14 revenue to SGD310.7m, aided by 17% positive rental reversion for leases secured during the year, but offset by a weaker yen and lower translated revenue from the Japan portfolio. It expects rental reversions to moderate going forward. Full-year DPU rose 7.1% YoY to 7.35 cts, with the SGD2.48m gain from the divestment of 30 Woodlands Loop contributing 0.1 cts. MLT has about 18% of leases (in terms of NLA) due for renewal this year. The all-in-financing cost for 4QFY3/14 averaged 1.9% (4QFY3/13: 2.4%) with an average term of debt of 3.6 years. According to MLT’s interest rate sensitivity analysis, its DPU would decline ~0.5%, or 0.01 cts per quarter, for every 25bps increase in interest rate.

Unexciting DPU growth

We forecast DPU to grow at an unexciting CAGR of 0.3% over FY3/14-17E. Management said it will proactively seek to divest low-yielding assets to recycle capital. As for sponsor injections, the Mapletree Shah Alam Logistics Park in Malaysia is unlikely to be acquired this year due to ongoing defect rectification at the property. However, MLT cited opportunities in Mapletree Yangshan and Mapletree Zhengzhou in China. It has also signed a third-party MOU for a hi-specs warehouse in South-Korea and a purchase agreement may be forthcoming. As these prospective acquisitions have yet to materialise, we adjust our FY3/14-16E DPU forecasts by 1.2% on lower borrowing costs and better reversion rates. Maintain SELL with a DDM-derived TP of SGD1.00 (previously SGD0.98), given high valuations (1.2x P/BV) and lack of concrete growth catalysts.

Continue to wait for drivers

MLT’s 4QFY3/14 results were in line with consensus and our expectations, with this quarter’s DPU accounting for 26% of our full-year forecast and FY14 for 102%. Revenue for the quarter grew by 5.7% yoy, mainly due to new contributions from Singapore, Japan and Korea properties. We maintain our Hold rating with a slightly higher DDM-based (discount rate: 8.1%) target price of S$1.13 as we raised FY15-16 DPS by c.2.5% to reflect the slightly

better-than-expected results.

A good quarter

Mapletree Logistics Trust (MLT) reported its FY14 results, with revenue coming in at S$80.1m (+5.7% yoy) and DPU at 1.87 Scts (+7.8% yoy). The growth in revenue was dampened in part as a result of the weaker yen. Excluding forex losses, gross revenue would have increased to S$81.0m (+6.9% yoy) due to new attribution from the newly completed AEIs in Singapore and Japan, and contribution from the Box Centre in Korea that was acquired during the year (Jul 13). Lower borrowing costs and the partial distribution of the net gain from the divestment of 30 Woodlands Loop further boosted its earnings, bringing the total DPU to 1.89 Scts (+9.2% yoy).

Relying on inorganic growth

Rental reversion in FY13/14 remained healthy at 17%, mainly from Hong Kong and Singapore properties. Looking ahead, with positive rental reversion expected to moderate, together with only 18% of NLA (of which 14% has been renewed ahead of expiry) to be renewed in FY14/15, we believe MLT to rely more on acquisition and redevelopment for growth. In FY14/15, MLT is likely to benefit from the completed redevelopment project at Mapletree Benoi Logistics Hub (100% pre-committed), and the recently announced S$34.3m acquisition in Iskandar.

We maintain a Hold rating

With the current leverage ratio of 33.3%, MLT continues to have the financial ability to capitalise on further inorganic opportunities. Although it is well poised to grow in FY14/15, we believe that the positivity of MLT may be dampened by the continual weakness in the yen. We maintain our Hold rating with a slightly higher DDM-based target price of S$1.13 as we wait for more impactful acquisitions/redevelopments.

Seeking growth drivers

• 9MFY3/14 results in line with our and market expectations.
  
• Japan portfolio continues to languish; the aggregated revenue and NPI for the past four quarters fell 16% YoY.
  
• Capital value still at risk. FY3/14E-16E DPU CAGR of 1% is unexciting. Maintain contrarian SELL with TP lowered to SGD0.98.
  

Takeaways from conference call

Reasonable debt headroom. With gearing at 33.9%, MLT has a debt headroom of SGD450m before hitting the 40% leverage ratio. But it has not had much luck with acquiring assets from its sponsor, Mapletree Investments Pte Ltd (MIPL) in the past year despite MPIL having 13 sizeable logistics developments in Asia.

Weak yen a concern. The weakening Japanese yen remains a concern because Japan is home to about 25% of MLT’s assets and accounted for 21% of its revenue in 3QFY3/14. Moreover, its forex hedging has been concentrated mainly in FY3/14 and management did not disclose the swap rates for future years.

Eye on growing rental market. MLT said it has converted two single-user assets (SUAs) into multi-tenanted buildings (MTBs) in FY3/14, with another two to be converted by Mar 2014. It plans to progressively shift its SUA-to-MTB ratio from 59%:41% currently to 50%:50%. This would shorten its weighted average lease expiry periods in the coming years (3QFY3/14: 4.8 years), as MTBs have shorter three-year leases vs at least five years for SUAs and are better able to capture the upside of a growing rental market.

What’s Our View

We forecast DPU to grow at an unexciting 1% CAGR over FY3/14E-16E. MLT said active lease and asset management will remain a key management priority, especially in Singapore in view of the upcoming supply of 3.9m sq ft of warehouse space in 2014. In terms of acquisition, we are still waiting to see if MLT will target sponsor injections such as Mapletree Shah Alam Logistics Park in Malaysia and Mapletree Zhengzhou International Logistics Park in China. We cut our FY3/14E-16E DPU forecasts by 0.3-0.5% in anticipation of lower growth prospects and higher borrowing costs. The stock has corrected by 6% in the previous quarter. Maintain SELL with a lower DDM-derived TP of SGD0.98.

Another stable quarter

MLT’s 3QFY14 results were in line with consensus and our expectations, with this quarter’s DPU accounting for 26% of our full-year forecast and 9MFY14 for 76%. Revenue for the quarter grew 1% yoy, mainly a result of the weakening of the yen. During FY13/14, MLT hedged/derived more than 95% of its distributable income in SG$. We maintain our Hold rating with an unchanged DDM-based (discount rate: 8.1%) target price of S$1.11, as the REIT continues to seek opportunities to boost its earnings.

Growth softened by weak yen

Mapletree Logistics Trust (MLT) reported its 3QFY14 results, with revenue coming in at S$78.1m (+0.9% yoy) and DPU at S$1.82 (+5.5% yoy). The feeble revenue growth was mainly attributed to the weaker yen. Excluding forex losses, gross revenue would have increased by S$3.7m (+5.0% yoy) due to positive rental reversions in Singapore and Hong Kong and additional income from the acquisition of Box Centre in South Korea (acquired in Jul 2013) and Mapletree WuXi Logistics Park in China (acquired in Jan 2013). Lower borrowing costs (-23% yoy) mitigated the weakness in the JPY.

Depend on development projects for growth

Although rental reversion was impressive, posting an average of 23% during the quarter, a large part of it was the result of converting two single-user assets to multi-tenanted buildings. Excluding these assets, rental reversion would be at 13% instead. Looking ahead, with 8.1% of NLA to be renewed in FY13/14 and 16.2% in FY14/15, we expect rental reversion to have a minimal impact on MLT’s growth. Instead we expect its DPU to grow by 4.9% next year as a result of the recent completion of the redevelopment project at Mapletree Benoi Logistics Hub (100% pre-committed) and the recently announced S$34.3m acquisition in Iskandar.

Maintain Hold

Although poised to grow in FY14/15, we believe the positivity of MLT may be dampened by the continual weakness in the yen. We maintain Hold with unchanged DDM-based target price of S$1.11 as we wait for more impactful acquisitions/redevelopments.

Strong but priced in

• 3QFY14 DPU rose by 7.0% YoY
  
• Focus on lease and asset management
  
• Initiatives in place to sustain performance
  

3QFY14 results met expectations

Mapletree Logistics Trust (MLT) reported a consistent set of 3QFY14 results last evening. NPI saw a marginal drop of 0.2% YoY to S$67.4m, dragged down by weaker JPY. Excluding the forex impact, NPI would have

grown by 3.6% on the back of higher renewal rents in Singapore and Hong Kong, and new income streams from Mapletree Wuxi Logistics Park and The Box Centre. Impact of depreciating JPY on bottomline, however, was mitigated as contributions from Japan are substantially hedged. Together with a 22.9% decrease in borrowing costs and divestment gain of S$0.6m, amount distributable to unitholders rose by 7.7% to S$45.0m. As such, DPU similarly grew by 7.0% to 1.84 S cents. This brings the 9MFY14 DPU to 5.46 S cents, meeting 75.2%/76.9% of our/consensus full-year projections.

Portfolio metrics remained sturdy

Portfolio occupancy stood at 98.4%, representing a slight QoQ drop of 0.3ppt. This, we note, was due to the conversion of two single-user assets into multi-tenanted buildings in Singapore. That aside, operational performance remained sturdy, as evidenced by robust rental reversions of 23% and healthy leasing activities (84% of FY14 leases renewed to-date vs. 62% a quarter ago) achieved at its portfolio. Management reiterated that active lease and asset management will be a key priority going forward in light of the supply of warehouse space in 2014 and impending conversion of more single-user assets into multi-tenancies (which may result in occupancy dip).

Maintain HOLD

MLT also confirmed our view that competition for acquisition of logistic assets is becoming increasingly intense. Nevertheless, given that MLT’s recent initiatives, such as 1) completion of redevelopment of Mapletree Benoi Logistics Hub and Phase 1 solar panel installation at its Japan assets, 2) upcoming redevelopment of 5B Toh Guan Road East and Phase 2 solar panel installation, and 3) proposed acquisition of warehouse in Iskandar Malaysia, are like to contribute positively to MLT’s income, we believe MLT’s performance will remain robust in FY15. Maintain HOLD with unchanged fair value of S$1.06.