SINGAPORE (Apr 30): OCBC Investment Research is maintaining its “buy” recommendation on Mapletree Logistics Trust (MLT) with a lower fair value of $1.44 from $1.48 previously to account for a lower distribution of divestment gains from 7 Tai Seng Drive.
This comes post the release of the REIT’s 4Q18 results, which met the research house’s expectations for both the quarter and full year.
See: Mapletree Logistics Trust posts 4.1% increase in 4Q DPU to 1.937 cents
In a Monday report, lead analyst Andy Wong says he was initially lukewarm over the REIT manager’s proposed acquisition of a 50% interest in 11 properties in China from its sponsor, especially considering how the transaction’s estimated pro-forma DPU accretion amounted to only 0.4%, and was possibly even dilutive in the first year should the issuance price for the equity fund-raising fall below the illustrative issuance price of $1.20.
See: Mapletree Logistics Trust to acquire 50% stake in 11 logistics properties in China from sponsor for $205 mil
His reservations regarding the acquisition were further fuelled given uncertainties over the ongoing trade tensions between China and the US.
However, Wong is now more positive on the potential transaction given how MLT’s management has highlighted cross-selling opportunities as one of its key strategies, as a number of tenants from this acquisition are interested to expand into Southeast Asia.
Citing an independent market research consultant, the analyst also points out that MLT may also be able to benefit from higher Grade A warehouse rental growth of 2.7%-5.1% in 2018, and 3.5%-5.9% in 2019 for the 11 Chinese cities where the proposed acquisition properties are located.
“Furthermore, the proportion of overall gross revenue from e-commerce related tenants will increase from 24% to ~26% post completion of this acquisition,” he adds.
As at 10.58am, units in MLT are trading flat at $1.27, which implies a FY19 DPU yield of 6.2%.