SINGAPORE (Oct 20): DBS Group Research says it is excited by growth prospects for Mapletree Logistics Trust, following its recent acquisition of Mapletree Logistics Hub Tsing Yi in Hong Kong.
The research house is keeping its “buy” call on MLT, and raising its target price to $1.38, from $1.28 previously.
“We believe that the street has not accounted for the improved fundamentals post acquisition of Mapletree Logistics Hub Tsing Yi,” says DBS lead analyst Derek Tan in a Friday report.
According to Tan, an estimated 85% of MLT’s portfolio value and 82% of its portfolio net property income is made up of more developed markets, namely Singapore, Japan, Hong Kong, and Australia.
“These countries are facing improving rental reversionary prospects which add to MLT’s income visibility and stability,” Tan says. “Coupled with a stronger balance sheet post recapitalisation, we believe that that the REIT’s improved earnings prospects will translate to higher valuations going forward.”
The REIT in August announced the acquisition of Mapletree Logistics Hub Tsing Yi for HK$4.8 billion ($834.8 million).
With a net lettable area of 148,065 sqm, the 11-storey modern ramp-up warehouse is in close proximity to the Kwai Chung-Tsing Yi container terminals, and is also well connected by highways to the city centre, the Hong Kong International Airport and Mainland China.
See: Mapletree Logistics Trust to acquire Hong Kong warehouse for $834.8 mil
According to Tan, the property has an implied yield of 5.7% on a non-amortised basis, or 5.1% after accounting for rent-frees given upfront.
“The initial yield will likely come as a positive surprise to investors when compared to recent transactions of close to 4.0% yield and the current portfolio yield of 4.5% in Hong Kong,” he adds.
Already, Tan believes MLT could be gearing up for even more acquisitions in the second half of 2018 through to 2019.
“We remain optimistic on MLT’s ability to drive growth through acquisitions. After its first foray into Australia, we see MLT further deepening its exposure through strategic purchases over the medium term,” he says.
In addition, Tan says he is excited about the acquisition prospects available to MLT from the sponsor. “We see a sizeable and growing pipeline of development properties which are approaching maturity that could be injected in the medium term,” he says.
Meanwhile, Tan points out that the manager of MLT is also looking to divest low-yielding assets in Singapore and Japan, and to re-cycle the proceeds into higher-yielding assets.
As at 12.35pm, units in Mapletree Logistics Trust are trading half a cent higher at $1.23, implying an estimated price-to-earnings ratio of 16.6 times and distribution yield of 6.2% for FY2018.
