Wednesday, December 4, 2013

Mapletree Logistics Trust - Driving into the redevelopment lane (CIMB)

Mapletree Logistics Trust -
Current S$1.06
Target S$1.11
Driving into the redevelopment lane

With increasing difficulties in acquiring yield-accretive properties, MLT is expected to grow by maximising the plot ratios of some of its underutilised properties in the medium term.

Given the difficulty of acquiring yield-accretive properties, we expect MLT to rely more on redevelopment projects for its mid-term growth. With a resilient portfolio and more than 90% of its distributable income hedged, we upgrade it to Neutral from Underperform with a slightly higher DDM-based (discount rate: 8.1%) target price of S$1.11 as we factor in the upcoming development project at 5B Toh Guan Road.

What Happened
Recently, MLT announced the redevelopment of 5B Toh Guan Road East into a 6-storey modern ramp-up facility. This will create an additional 40,000 sq m GFA as the plot ratio will increase from 0.93x to 2.5x. Management guided that an estimated S$107m will be spent on this project. With an expected completion date of 4Q15, this project is expected to have an initial yield of 7-8%, translating into DPU growth of 1.4% in FY15-16. Occupancy at this property is 80% and we expect its redevelopment to have a minimal impact (estimated 1%) on MLT's revenue and DPU during construction.

What We Think
The current environment of high asset prices, coupled with a potential rise in funding costs for both debtand equity-raising, could restrain MLT's ability to make yield-accretive acquisitions. With a net gearing of 34.4% as at end-3Q13, it can still take on development projects without running the risk of overpaying for assets or resorting to large rights issues. Going forward, we expect MLT to rely more on redevelopment projects for its growth as management continues to evaluate properties in its portfolio for such potential.

What You Should Do
With a resilient portfolio, hedged currencies and room for growth through redevelopment, we upgrade MLT to Neutral with a slightly higher DDM-based target price of S$1.11.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 29/11/13

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