Excerpts from UOB KayHian report
Mapletree Logistics Trust (SGX: M44U)
- Mapletree Logistics Trust has embarked on the redevelopment of 51 Benoi Road into a six-storey ramp-up logistics property with GFA of 865,000sf.
- It plans to amalgamate and redevelop two newly-acquired parcels of leasehold industrial properties and its existing Subang 3 and 4 properties at Subang Jaya, Selangor into a six-storey ramp-up logistics megahub with GFA of 1.4m sf.
Maintain BUY. Target price: S$2.23. Unit price has corrected 25% from its recent peak and FY23 distribution yield has improved to 5.7%
Strengthening portfolio through redevelopments
It is a difficult environment to grow via acquisitions due to compressed capitalisation rates, higher interest rates and volatilities in the equity market. Thus, we expect Mapletree Logistics Trust (MLT) to place more emphasis on redevelopment projects in the near term:
a) 51 Benoi Road. MLT has received approval from Jurong Town Corporation (JTC) to redevelop 51 Benoi Road into a six-storey ramp-up logistics property with modern specifications.
The redevelopment will provide uplift to GFA by 2.3x to 80,360sqm (865,000sf). Existing tenants are being decanted and demolition is expected to commence in 3QFY23. The redevelopment is scheduled to complete by 4QFY25.
Management estimated yield on cost at 6.2% based on total development cost at S$232m. The property is located in close proximity to Joo Koon MRT station along the East-West Line and FairPrice Hub retail mall.
b) Developing the first modern ramp-up logistics property in Subang Jaya. MLT has acquired two parcels of leasehold industrial properties at Subang Jaya, which are located next to its existing Subang 3 and 4 logistics properties, for RM65.6m (S$21.2m).
It plans to amalgamate the four industrial properties into a huge 492,000sf site to be redeveloped into a six-storey ramp-up megahub with 1.4m sf of logistics space, five times their current size.
Management estimated yield on cost at 7% based on total investment cost of RM500m (S$157m). The redevelopment will not contribute to income in the initial years and is expected to complete by 2027.
Mapletree Logistics Trust completed a small acquisition in Singapore
MLT completed the acquisition of 9 Changi South Street 2, a four-storey temperature controlled warehouse with ancillary office, for S$24.5m in Dec 21.
MLT is in talks with an international third-party logistics player to be the anchor tenant at 9 Changi South Street 2. The newly-acquired 9 Changi South Street 2 is located adjacent to MLT’s existing 15 Changi South Street 2.
Continuing to focus on the Asia Pacific region
MLT will pursue acquisitions of logistics properties in developed markets, such as Australia, South Korea and Japan, from third-party vendors.
It will also explore opportunities to acquire logistics properties in Vietnam and India, tapping on pipeline from sponsor Mapletree Investments.
Given that capitalisation rates are already compressed, management is open to acquiring logistics properties that have not stabilised (undertaking some leasing risks).
Value creation through asset recycling
Management intends to step up the pace of asset recycling. There could be opportunities to divest logistics properties at non-prime locations in Singapore, Malaysia, South Korea and Australia at attractive cap rates.
Prudent capital management
MLT’s aggregate leverage is healthy at 36.8% as of Mar 22. Debt maturity is well-staggered with average debt maturity of 3.8 years. Average cost of debts was stable at 2.2%. 79% of MLT’s total borrowings are hedged to fixed interest rates.
Management estimated that every 25bp increase in base interest rates will result in decrease in distributable income of S$0.65m and drop in DPU of 0.01 cents
Mapletree Logistics Trust leasing demand remains resilient
Despite uncertainties created by the Russia-Ukraine war. MLT’s logistics properties in Singapore benefit from growth from e-commerce and
inventory stockpiling.
In Hong Kong, it enjoys firm rental rates and high occupancies due to favourable demand-supply dynamics. Japan, South Korea and Australia provide stable income streams due to increased e-commerce penetration.
Tenants in China have become more cautious due to slowdown in economic growth and negative impact from the zero tolerance policy to suppress outbreak of COVID-19.
VALUATION/RECOMMENDATION
Maintain BUY. Our target price of S$2.23 is based on Dividend Discount Model (cost of equity: 6.0%, terminal growth: 2.0%).
