Analysts from CGS-CIMB Research have maintained their “add” rating for Mapletree Logistics Trust (MLT) M44U with an increased target price (TP) of $1.88 from $1.84 previously, as the REIT resumes its assets under management (AUM) growth.
In their March 30 report, Lock Mun Yee and Natalie Ong note that MLT has proposed the acquisition of eight properties in Japan, Australia and South Korea for $913.6 million, or at a 4% discount to independent valuation.
According to the analysts, the eight modern logistics warehouses are fully leased with a weighted average lease to expiry (WALE) of 4.4 years, and will boost MLT’s portfolio occupancy to 97%, post purchase.
“Not only are the Japan assets located close to major highways and population catchment areas, but management indicated that some of the properties are under-rented, providing potential rental upside upon lease renewals. Meanwhile, the Australia and South Korea assets have stable cash flows with built-in rental escalations,” they add.
Lock and Ong say the acquisition of the eight properties, which is expected to be complete by May this year will “rejuvenate” MLT’s portfolio, as the average age of the eight properties is 5.5 years, as well as deepen the REIT’s footprint in Tokyo, Sydney and Seoul, where there are tight supply and low vacancy rates for logistics warehouses.
Post transaction, they expect 73% of MLT’s AUM to be in developed markets compared to 70% previously. The acquisitions are expected to generate an initial property yield of 3.5% in Japan, 4.7% in Australia and 4.6% in South Korea, and are accretive when compared to management’s guidance of an average 2.3% funding cost.
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The proposed acquisitions will be financed by MLT with net additional debt of $746.8 million and proceeds from a $200 million private placement. Proceeds from the private placement, which was 3.9 times subscribed at the issue price of $1.649 per unit, will be utilised to partly fund the acquisition of the eight properties and repay existing debt.
MLT also plans to secure new Japanese Yen debt to provide a full natural hedge to its properties as well as take on a new RMB loan to increase its natural RMB hedge within its portfolio, add the CGS-CIMB analysts.
Overall, the REIT estimates its pro forma gearing will rise to 39.9% from 36.6%, post-transaction, while pro forma distribution per unit (DPU) is expected to show a 2.2% accretion. “With its balance sheet still on solid footing, we believe MLT would likely look to tap into new acquisition opportunities even as it continues on its capital recycling strategy,” say Lock and Ong.
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They note that MLT has also indicated that it is in discussions to potentially purchase two properties in Jiaxing, China for $209.6 million and is also looking to divest a non-core property in Hong Kong for $100.3 million.
The analysts have raised their FY2024 to FY2025 DPU forecasts by 0.41% to 1.67% to factor in contributions from the new acquisitions and the issue of new units from the private placement. Accordingly, their dividend discount model (DDM) based TP has been lifted to $1.88 from $1.84 previously.
As at 9.32am, units in MLT were trading 6 cents or 3.51% up at $1.77.
