Maybank Securities analyst Krishna Guha has upgraded his call on Mapletree Logistics Trust (MLT) M44U to “buy” from "hold" on the back of the REIT’s continued portfolio rejuvenation and recycling. The analyst has also increased his target price estimate to $1.80 from $1.60 before.
MLT’s manager, on March 30, announced that it will be acquiring eight properties in Japan, Australia and South Korea for $913.6 million. Including another potential acquisition and divestment in Greater China, the total acquisitions are expected to cost the REIT around $946.8 million.
The transactions will be paid off via a mix of debt and equity, resulting in an accretion to MLT’s distribution per unit (DPU) and net asset value (NAV) while capping its leverage below 40%, notes Guha.
“The deal will deepen MLT’s regional network and improve the quality with new-build, better specs freehold assets,” the analyst writes in his report dated March 31.
“Assets are 100% occupied on a weighted average lease expiry (WALE) of 4.4 years, longer than the current portfolio. Step-up rents in Seoul and Sydney and under-rented portfolio in Japan should result in organic growth as well,” he adds. “Pro forma DPU and NAV accretion for 9MFY2022/2023 is 2.2% and 0.6% respectively. Gearing will increase to 39.9% (+3.3% percentage points or ppt).”
Following the proposed deal and overall higher funding cost, Guha has raised his FY2024 and FY2025 DPU estimates by 0.5% and 2% respectively.
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In his view, MLT’s continuing to pursue its stated strategy of rejuvenation and opportunistic recycling through accretive deals is a plus while China’s growing consumption augurs well for the REIT. About 22% of MLT’s gross rental income (GRI) is from China.
In addition, the receding foreign exchange (forex) volatility as rates plateau is another tailwind for the REIT, in Guha’s view.
Units in MLT closed 4 cents higher or 2.34% up at $1.75 on April 3.
