SINGAPORE (July 21): OCBC Investment Research has a “hold” call on Mapletree Logistics Trust (MLT) with a higher fair value estimate of $2.07 from $1.79 previously.
This came following the trust yesterday announcing that its 1QFY20/21 DPU has increased by 1.0% y-o-y to 2.045 cents, with gross revenue and net property income increasing by 10.5% and 12.0% to $132.4 million and $118.8 million, respectively.
The improvement in results were driven by both organic and inorganic growth, but partially offset by rental rebates granted to eligible tenants impacted by the Covid-19 outbreak and absence of contribution from six divested properties completed in FY20.
See: MLT posts 1% increase in 1Q DPU to 2.045 cents
Overall, the trust’s results were in-line with the research house’s expectations. OCBC is bullish on MLT’s diversified logistics portfolio spread across key Asian markets, as well as the management’s strong execution capabilities and its portfolio capital recycling strategy, which has resulted in net divestment gains being distributed to unitholders.
In a Tuesday report, OCBC noted that MLT’s operating metrics pointed to another quarter of resiliency despite the Covid-19 pandemic. Although portfolio occupancy saw a slight drop from 98.0% as at end-Mar to 97.2% as at end-June, this is still deemed as a healthy level.
On the rental front, MLT achieved positive rental reversions of 1.9% in 1QFY20/21. This was largely driven by China, Hong Kong, Malaysia and Vietnam. All of MLT’s tenants have resumed operations, except for about 1.3% of its revenue base.
Besides MLT’s resilient operating metrics, its financial position also remains firm.
Aggregate leverage ratio was 39.6%, a 0.3 percentage point increase q-o-q, with an interest coverage ratio of 4.8 times, while weighted average annualised interest rate was down slightly by 20 basis points q-o-q to 2.3%.
Furthermore, MLT’s management has recently announced a small proposed acquisition of a Grade A logistics facility in Brisbane, Australia for A$21.3 million ($20.2 million). This translates into an initial NPI yield of 5.4%. This acquisition is expected to complete in 3QFY20/21 and has already secured 100% commitment from Decina Bathroomware for a 10- year lease with annual rent escalations.
“Factoring this and two earlier acquisitions in our model, we raise our FY20/21 and FY21/22 DPU forecasts by 1.5% and 3.5%, respectively. We also lower our cost of equity assumption by 50 basis points to 6.0% on account of positive structural trends that would benefit MLT and its relative stability within the S-REITs sector,” says OCBC.
Although MLT will not be immune to a weaker macroeconomic backdrop, it is still expected to remain relatively more resilient vis-à-vis its peers. MLT is also expected to be a key beneficiary of the structural shift towards more robust e-commerce growth trends ahead.
As at 3.50pm, units in MLT are trading at $2.06 or 1.7 times FY20/21 NAV with a DPU yield of 4.1%.
