MapleTree – Daiwa

Worst fears realised

Investment summary

We have downgraded our rating for Mapletree Logistics Trust (MLT) to 3 (Hold) from 1 (Buy) after the manager finally relented and announced, on 24 June, a S$606.7m three-for-four rights issue at S$0.73 per rights unit.

Fundamentals

• We had identified a rights issue as a major risk factor previously, although we expected MLT to stay put, and ride out the weak market (we were wrong).

• We have revised down our distribution-per-unit (DPU) forecasts by 30.8% for 2008, 27.1% for 2009, and 24.3% for 2010, after incorporating the terms of the highly dilutive rights issue.

• Based on a theoretical ex-rights price of S$0.84 (from the 24 June closing price of S$0.93), the adjusted FY09 forecast yield is about 6.95%.

• We have lowered our six-month target price, based on our RNG valuation method, to S$0.94 from S$1.30.

• We believe MLT has enough deal flow to soak up the rights issue, but that by then the manager would face future equity-fund-raising (EFR) challenges with a spotty (in our opinion) capital-management track record.