Mapletree Logistics Trust - Likely resilient, even in downturn (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.825

Fair Value: S$1.06

Sanguine view on MLT's outlook. We recently met Mapletree Logistics Trust (MLT) management for an update and came away with a positive view on its outlook. Despite the current uncertain economic backdrop, MLT shared that it has already secured a majority of the leases that are up for renewal in 3Q11. We believe some of these renewals may be made at higher rates than its passing rents, as the previous leases might have been secured at depressed levels during the financial crisis. Latest datapoints from Jones Lang LaSalle (JLL) showed that Singapore factory/ industrial rental growths have moderated (0-3% QoQ) in 3Q11, but were still 35-67% above their last troughs in end 2009. Hence, we anticipate MLT to report another round of positive rental reversion for the renewals, when it releases its 3Q11 results on 20 Oct.

Stable diversified portfolio. Management also highlighted that its portfolio is well-diversified, both in terms of geography and tenant types. We note that its end-users are also relatively well-spread across various industries, while its leases are typically covered by security deposits (average of 7.7-month coverage as at 30 Jun). Moreover, its annual portfolio occupancy rate has remained consistently high, even in market downturns (It has never fallen below 98.0% since its listing. In 2Q11, the rate was at 98.9%, an improvement from 98.3% seen in 1Q11). This clearly shows the resilience of its portfolio, in our view.

Continued focus on yield optimization. For 2Q11, the group announced a commendable 26.6% and 24.6% YoY growth in gross revenue and NPI respectively, due to contributions from its acquisitions made over 2010-11. In the same quarter, it also divested its properties at 9 and 39 Tampines Street 92. This reflects the MLT's ability to recycle capital to optimize its yield. Going forward, we expect the group to continue to focus on this yield and growth strategy. While we believe it may be more selective in investments in this uncertain economic condition or even be facing difficulty in finding sizeable yieldaccretive third party acquisition, we note that MLT has a strong pipeline from its sponsor (~S$300m completed or near completion).

Maintain BUY. We continue to like MLT for its resilient portfolio, proven track record and strong sponsor support. Aggregate leverage may be a concern (40.6%), but MLT said it has sufficient resources and is already in advanced talks with banks to refinance its debts maturing in 2012. Maintain BUY with revised fair value of S$1.06 (S$1.01 previously), after incorporating its 2Q11 results.