Mapletree Logistics Trust’s acquisition of Tsing Yi in Hong Kong
MLT announced the acquisition of the Tsing Yi warehouse in Hong Kong yesterday. Here are a few things that investors should take note of MLT’s Tsing Yi acquisition.
Accretive Tsing Yi acquisition
The acquisition is expected to be accretive, with DPU rising from 1.887 SG cents to 1.919 SG cents.
The acquisition will be funded with a mix of debt and equity. MLT is combining the purchase with redemption of perpetual existing securities so the total amount of funds raised will be slightly higher.
Sources and uses of funds for Tsing Yi acquisition
|Uses of funds||Sources of funds|
|S$838.4 million purchase consideration||Equity fundraising of S$640 million|
|S$8.6 million transaction costs||Loan facilities of S$377.3 million|
|S$4.2 million acquisition fee||New perpetual securities of S$180 million|
|S$350 million of existing perpetual securities redemption|
Occupancy rate will increase to 95.7% from 95.5% and there will be a greater proportion of properties that are multi-tenanted in the portfolio.
This implies that future revenue growth could be higher as the leases are renewed at a hopefully higher unit rate.
Purchased at discount to valuation
MLT managed to get a good deal from Tsing Yi, buying the property at a roughly 2.7% discount to valuation.
Purchased higher than market yield
MLT also managed to buy Tsing Yi at a higher than market property yield.
Together with valuation being at around market, this indicates that the in place rents could be slightly higher than market.
Together with Tsing Yi committed occupancy being 100%, the REIT manager needs to ensure that when leases are expired, they will be able to re-let them at the same or higher rate to prevent NPI yield from falling.
Backing out the NPI of the property at 5.7% x 4,950 million HKD, it amounts to roughly 282 million HKD or S$48 million.
Tsing Yi general info
Tsing Yi is presently 100% occupied, completed in 2016 and has a leasehold term of 50 years expiring in 2063. No major implications for unitholders on this front.
100 bps rise in leverage
Sharp eyed investors will notice that the leverage in the acquisition presentation slides are different from June 2017’s presentation figures. This is because the acquisition slides has adjusted for the divestment of Zama Centre and Shiroishi Centre in Japan.
Nevertheless, aggregate leverage will rise marginally to 38% from 37% post Tsing Yi’s acquisition.
Few tenants in Tsing Yi
Ever Gain is the biggest tenant by gross revenue, contributing 24.1% of gross rental revenue.
Tsing Yi’s occupancy is concentrated among few tenants, with 10 tenants contributing 95.5% of the gross revenue of the property.
Imply that if any one tenant leaves, especially the bigger ones like Ever Gain, Adidas or Angliss, there could be a ‘hole’ in the revenue stream unless a replacement is quickly found.
Alternatively, when one large tenant leaves, a few small replacements can be found, thereby raising the gross revenue. i.e. the total revenue from a few small tenants is more than the revenue form the large tenant.
Ever Gain is a logistics service company that has been in business since 1978. There doesn’t appear to be any credit risk with this name.
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