Mapletree Logistics Trust - Completes KPPC Pyeongtaek Centre buy (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.91

Fair Value: S$1.01

KPPC Pyeongtaek Centre. Mapletree Logistics Trust (MLT) announced on 17 Jun that it has completed the acquisition of KPPC Pyeongtaek Centre in South Korea. Recall that MLT has previously reported on 25 May that it has signed a conditional sale and purchase agreement with Korea Port Processing Co. Ltd (KPPC) for this property at a purchase price of approximately S$85.9m (KRW 75.6b). The property comprises two blocks of dry goods warehouses with a total GFA of about 100,900 sqm. There is also potential for organic growth as it has yet to maximise its permissible plot ratio, which will yield an additional GFA of close to 20,000 sqm. The vendor, KPPC, will lease the entire property for a period of 5 years with an annual rental escalation of 3.0%.

Important milestone in South Korea. MLT has stated that this acquisition marks an important milestone to entrench the trust into the South Korea market. Given the sizeable acquisition, the contribution of South Korea to the total portfolio's gross revenue is expected to increase from 2.7% to 5.6%. Consequently, KPPC will be the first Korean customer in MLT's list of top ten tenants; thus further diversifying its tenant base. Assuming that the purchase price and other acquisition costs of the property are fully funded by debt, we estimate that MLT's gearing should increase to about 41.3% in FY11 from 37.7% in FY10 (after taking into account all acquisitions and divestments announced to date).

Yield-accretive acquisition. According to MLT, the new property provides an initial NPI yield-on-cost of 8.6%. We have factored in contributions from KPPC Pyeongtaek Centre starting on 18 Jun with a modest starting rent of S$7.02 psm/month or KRW 6178 psm/month (GFA basis). Based on our estimates, this compares favourably with the NPI yield of 5.58% in FY10.

More acquisitions to come. Apart from Korea, MLT has also said that it is actively looking at acquiring a warehouse (60,000 sqm and 98% leased) in Malaysia from its sponsor. MLT should be able to complete this acquisition by this year. Going forward, its main acquisition focus continues to be in Singapore, Malaysia and South Korea. MLT has a proven track record of executing a virtuous cycle of accretive acquisitions and competitive fund-raising. It is also a favourable move to recycle proceeds into better-yielding assets. Reiterate BUY with an unchanged RNAV-derived fair value of S$1.01.