Compiled by Lynette Tan
MAPLETREE LOGISTICS TRUST | BUY
JULY 24 CLOSE: $1.60
TARGET PRICE: $1.85
DBS Group Research, July 24
Following the acquisition of 11 properties in China and a portfolio of five ramp-up properties in Singapore and divestments of selected older-specification properties, Mapletree Logistics Trust (MLT) saw a slight dip in occupancy rates to 97.6 per cent in Q1 FY2020 (Q4 FY2019 of 98.0 per cent).
We saw higher take-rates from China (96.4 per cent in Q1 FY2020 versus 95.5 per cent in Q4 FY2019) from the backfilling of JD.com space. However, we saw a drop in occupancy rates in Singapore (96.5 per cent in Q1 FY2020 versus 97.4 per cent in Q4 FY2019) due to the expiry of a single-user asset for which the manager looks to backfill in the subsequent quarters.
The Reit also reported a strong rental reversion of 1.8 per cent in Q1 FY2020 (versus 2 per cent for FY2019) mainly from Hong Kong, Vietnam and China. We think operating metrics remain resilient.
With an active pipeline from the sponsor and opportunities from third parties, we believe that the manager will be keen to reinvest the proceeds and utilise its debt headroom to drive accretive acquisitions. We have priced in $500 million in our forecasts.
The manager is looking at opportunities in its key markets and potentially forward purchase deals (i.e. development deals) in markets such as Australia and Korea where the sponsor does not have a development pipeline to bulk up and grow.
ESR-REIT | ADD
JULY 24 CLOSE: $0.525
TARGET PRICE: $0.61
CGS-CIMB, July 23
We retain our add call but lower our dividend discount model (DDM)-based target price after incorporating the impact of the equity fund raising and lower business park occupancy, although that is slightly offset by higher capital distribution. We like ESR for its re-rating potential post-merger as the portfolio is right-sized and stabilised as of Q2 2019.
We understand that ESR still has over $60 million of divestment gains yet to be paid out. We think ESR's undistributed capital gains are sufficient to smooth out any income uncertainties. Key risks include any dilutive fund raisings.
ESR sees tenants turning more cautious on renewals and expansion plans in light of global uncertainties and a weaker outlook, similar to the sentiment 9-12 months ago. It has not seen tenants giving back space although the pace of negotiations has been slower.
Business parks occupancies continue to be soft due to the vacancies from Cisco at UE Biz Hub East. We cut our FY2019-2021 forecast distribution per unit estimates.
In Q2, rental reversions for logistics and general industrial assets dipped slightly due to the large market supply and older assets, respectively. ESR expects rental reversions to be flattish for 2H 2019.
As for gearing, while the potential increase in leverage limits by MAS could give them more flexibility, ESR does not expect any major change in its capital management strategy.
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