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On a shopping spree

■ MLT to acquire 17 logistics assets in China, Vietnam and Japan for S$1.4bn.
■ The acquisitions will be funded by debt and an equity fund raising exercise.
■ Reiterate Hold rating with an unchanged DDM-based TP of S$2.11.

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Acquiring assets in China, Vietnam and Japan for S$1.4bn

MLT has proposed the acquisition of 13 logistics assets in China and 3 logistics properties in Vietnam (IPT properties) from its sponsor, as well as the purchase of a 97% stake in a Japan logistics property from a third party, for total price of S$1,403.7m or at a 0.6% discount to the average independent valuation. The China properties, with 863k sqm of net lettable area, are located in Wenzhou, Zhengzhou, Yangzhou, Kunming, Yuyao, Xian, Yixing, Yantai, Harbin, Chongqing, Tianjin and Zhongshan and have a committed occupancy of 89.1%. The Vietnam properties, located in Bac Ninh and Bin Duong, have a NLA of 188.5k sqm and have 100% committed occupancy. The IPT properties are acquired at a net yield of 5.1% (including income support of S$4.4m). The Japan property, located within Greater Nagoya, has 133,456 sqm of NLA with a committed occupancy of 82.5% and is purchased at an implied 4% net yield. The China
and Vietnam properties are relatively new, with a weighted average age of 1.5 years and weighted average lease expiry (WALE) of 2.9 years, while the Japan property has a WALE of 1.7 years. The IPT transaction is subject to unitholders’ approval at an EGM.

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Acquisitions expand network and deepen growth market presence

These acquisitions will deepen MLT’s presence in growth markets, such as China and Vietnam, while enabling it to capture structural opportunities accelerated by Covid-19. In addition, they will also strengthen MLT’s network connectivity across key logistics nodes. Post-acquisition, MLT’s AUM will expand to S$12.2bn, with developed markets making up 70.4% of its asset base and 65.8% of 6-month gross revenue, as at Sep 21. Management also indicated that it could continue to deliver more inorganic growth before end-FY3/22F. Furthermore, as MLT gains both size and scale, it plans to continue exploring more portfolio value-creating drivers by tapping asset enhancement/development opportunities, as well as adopt a more portfolio-aggregator strategy.

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Acquisitions to be funded by a mix of debt and equity

The total acquisition cost ( including transaction costs) of S$1,467.5m will be funded by loan facilities of S$562.4m, issue of consideration units to its sponsor (S$200m) and an equity fund raising exercise (S$700m) comprising a private placement of between 209.315m-215.054m new units at an issue price range of S$1.86-1.911/unit and a non-renounceable preferential offering of up to 163.410175 new units to existing eligible unitholders at an issue price of between S$1.82 and S$1.87/unit. Based on management’s proforma estimates, the deals are expected to deliver a 2.2% DPU accretion and lift BV by 4.4%, while gearing is projected to stay stable at 39%.

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Reiterate Hold rating

We leave our FY22-24F DPU estimates unchanged pending completion of the equity fund raising exercise, and maintain our DDM-based TP of S$2.11. While we like MLT for its pan-Asian logistics asset focus, FY22F dividend yield of c.4.4% is on the lower end vs. other industrial REITs. Upside risk: more accretive acquisitions. Downside risk: slow macro outlook that would hamper rental growth outlook, and longer-than-expected frictional vacancy risks.

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