1QFY23: Continued Growth And Steady Execution
MLT met expectations with 1QFY23 DPU increasing 5% yoy to 2.268 S cents. Average rent reversion accelerated by 0.5ppt qoq to 3.4% while portfolio occupancy was stable at 96.8%. MLT plans to unlock the value of existing properties through repositioning, enhancement or redevelopment. It is working on three redevelopment projects in Singapore and Malaysia. MLT provides attractive FY23 distribution yield of 5.3% (FLT: 5.7%). Maintain BUY. Target price: S$2.08.
RESULTS
• Mapletree Logistics Trust (MLT) reported DPU of 2.268 S cents (+5.0% yoy) for 1QFY23, which is in line with our expectations.
• Growth from existing properties and accretive acquisitions. Gross revenue and net property income (NPI) grew 14.6% yoy and 13.2% yoy respectively in 1QFY23 due to higher revenue from existing properties and accretive acquisitions completed in FY22 and 1QFY23. MLT received income support of S$0.6m during the quarter.
• Portfolio occupancy was relatively unchanged at 96.8% with higher occupancy for Japan and Hong Kong, offset by lower occupancy in Singapore, China and South Korea. Australia, India and Vietnam maintained full occupancy of 100%. MLT continues to focus on ensuring tenant retention and working closely with tenants to support their operations.
• Strong average rent reversion of 3.4% in 1QFY23 (Singapore: +4.3%, India: 4.1%, Vietnam: +3.9%, Japan: +3.7%, Malaysia: +3.5%, South Korea: +3.0%, Hong Kong: +2.8% and China: +2.8%). Rent reversion has picked up sequentially compared with 2.9% in 4QFY22 with continued strong demand after the peak of COVID-19. Singapore benefitted from lease renewal by Amazon for a logistics property in the western region.
• Prudent capital management. Average cost of debts was stable at 2.3%. MLT has sufficient committed credit facilities of S$848m to refinance debts of S$460m (9% of total borrowings) due in FY23. Its average debt maturity is healthy at 3.7 years. 80% of its total debts are hedged to fixed rates. Management estimated that every 25bp increase in base rates would reduce distributable income by S$0.63m and DPU by 0.01 S cents per quarter.
STOCK IMPACT
• Strengthening portfolio through redevelopment. It is a difficult environment to grow via acquisitions due to compressed capitalisation rates, higher interest rates and volatilities in the equity market. Nevertheless, MLT intends to unlock value of existing properties through repositioning, enhancement or redevelopment. We expect MLT to place more emphasis on redevelopment projects in the near term:
a) 51 Benoi Road is located in close proximity to Joo Koon MRT station along the East-West Line and FairPrice Hub retail mall. MLT has received approval from Jurong Town Corporation (JTC) to redevelop 51 Benoi Road into a six-storey high-specs ramp-up logistics property with modern specifications. The redevelopment will provide uplift to GFA by 2.3x to 82,405sqm (887,000sf). Management estimated yield on cost at 6.2% based on total development cost of S$197m. Existing tenants are being decanted and
demolition is expected to commence in 3QFY23. The redevelopment is scheduled to complete by 4QFY25.
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 is expected to complete by 2027.
• 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.
• Recycling capital. MLT completed the acquisitions of two properties, Mapletree (Yuyao) Logistics Park in Zhejiang, China (S$46.9m) and Baeksa Logistics Centre in Icheon, South Korea (S$98.8m), in 1QFY23. It is sieving through an S$2.5b pipeline from third-party vendors for opportunities to acquire logistics properties in Australia, Japan and South Korea. It also plans to recycle capital by divesting logistics properties in Malaysia, Singapore and South Korea. Management estimated debt headroom of S$700m based on aggregate leverage of 40% to support acquisitions. It also plans to recycle capital by divesting logistics properties in Malaysia, Singapore and South Korea.
• Expect recovery in China starting 3QFY23. Leases accounting for 24.2% of portfolio NLA would expire in FY23, of which about half comes from MLT’s China portfolio. China has eased lockdowns imposed to control the spread of COVID-19 since early-June. Tier-1 cities enjoy stable take-up for logistics space supported by continued growth in domestic consumption. Tier-2 cities have experienced slower take-up. Tenants are cautious and some have signed shorter leases of 1-2 years. Occupancy for MLT’s China portfolio eased 0.2ppt qoq to 92.9% in 1QFY23. Management expects continued weakness in 2QFY23 but
recovery is in sight starting 3QFY23. Key tenants, such as JD.com and Cainiao, are keen to renew their leases.
EARNINGS REVISION/RISK
• We maintained our DPU forecast.
VALUATION/RECOMMENDATION
• Maintain BUY. Our target price of S$2.08 is based on Dividend Discount Model (cost of equity: 6.0%, terminal growth: 2.0%).
SHARE PRICE CATALYST
• Accretive acquisitions to rejuvenate and reposition towards modern specifications logistics facilities, domestic consumption and e-commerce.
• Positive contributions from redevelopment projects.
