MLT acquisition of warehouse in South Korea

fair value of S$1.19


Mapletree Logistics Trust: Portfolio optimization via capital recycling
● Acquisition to be DPU-accretive
● Divestment amount above valuation
● Enhanced market position in South Korea

Acquisition of warehouse in South Korea Mapletree Logistics Trust (MLT) announced on 28 Aug that it will acquire Hyundai Logistics Centre in Gyeonggi-do, South Korea for a consideration of ~S$24.6m. The property comprises two blocks of threestorey dry warehouses and has a total GFA of 32,300 sqm. Both the leases to its two key tenants, E-Land World (major apparel and retail company) and
Korea Environment & Resources Corp (government corporation) provide for built-in rental escalation. According to management, the initial NPI yield is 9.0% and is expected to be DPUaccretive. We understand that the acquisition is targeted to complete by Dec 2012.

Divestment of 30 Woodlands Loop Separately, MLT had entered into an agreement to divest 30 Woodlands Loop in Singapore for S$15.5m. This represents a significant 50.5% and 40.9% premium to its purchase price of S$10.3m in 2007 and valuation of S$11.0m in Mar 2012 respectively. A net disposal gain of ~S$5.0m is expected. We note that the decision to divest the property came as a result of limited growth potential (building specifications no longer suitable for modern warehousing requirements) and attractive offer on hand. The divestment is expected to be completed by Feb 2013, and the sale proceeds will be redeployed to partially fund the acquisition in South Korea. As the investment is financed by a combination of debt and equity, gearing is only expected to inch up slightly from 37.0% as at 30 Jun to 37.2% upon completion of both transactions.

Maintain BUY We view both transactions positively as it clearly reflects MLT’s capability to optimize portfolio returns through proactive asset management and as the acquisition is likely to strengthen MLT’s market position in South Korea. The capital recycling initiative and overseas acquisition were also spot on with projections made in our S-REIT sector published a week ago. We now tweak our forecasts to accommodate the two transactions. Our FY13-14F DPUs are raised by 0.3-0.7%, but there is no change to our fair value of S$1.19.