Mapletree Logistics Trust

Mapletree Logistics Trust (MLT): MLT just announced its proposed acquisition of Coles Chilled Distribution Centre (Coles CDC) in Sydney, Australia for A$253m. This is its maiden acquisition in Australia. This property is expected to achieve an initial NPI yield of 5.6%. Though this acquisition is not cheap, we view it positively given 1) the property’s proximity to Sydney CBD where there is currently a lack of high-specification warehouses and 2) long lease structure with built-in rental escalation.

The acquisition will be fully funded by debt (70-80% A$-denominated debt and the balance in S$ debt), DPU will be boosted mildly by 0.7% in FY17-18. MLT’s leverage ratio will also rise from 34.9% to 38.5% upon completion of this acquisition.

Management plans to expand MLT’s presence in Australia, with target of growing its portfolio to S$500m over the next 12-18 months. Furthermore, with its plans to recycle some lower yielding assets within its portfolio, coupled with its existing DRP, no capital raising is required in the near term.

As MLT has recently corrected by 8.1%, coupled with its FY16 dividend yield of 7.2% vs its immediate peers’ 6.5%, CIMB upgrades its rating to ADD with TP: $1.31.

On the other hand, Daiwa maintains its HOLD rating but raise their TP to $1.18 from $1.17. A positive catalyst would be more DPU-accretive acquisitions if MLT can scale up rapidly in Australia, while a negative catalyst would be worse-than-expected portfolio performance in SG in the coming quarters.