MapleTree -CIMB

Possible overhang after rights issue

• In line. 2Q08 distributable profit of S$22.6m was in line with our expectations, forming 22% of our full-year estimate. DPU grew 28.2% yoy to 2.04cts, forming 28% of Street expectations and 38% of our forecast for FY08. We expect 2H to be stronger on the back of the completion of acquisitions and rental reversions. Our forecasts have factored in dilution from a coming rights issue. Revenue increased 28.4% yoy to S$43.8m on full contributions from 18 properties acquired in 2007 and four properties acquired in the quarter, as well as average rental reversions of 12% over preceding rates.

• Approved rights issue to strengthen balance sheet. At an EGM held on 18 Jul, unitholders approved a renounceable rights issue of 831.1m new units to raise S$606.7m. Despite the recent fall in MLT’s share price, the rights offer price of S$0.73 was maintained, with all excess rights not taken up by investors or the sponsor Mapletree Investment Pte Ltd to be absorbed by the four underwriting banks. However, we note that there is no moratorium to prevent the underwriters from releasing their units on the open market after the rights issue. Proceeds will be used to bring down MLT’s asset leverage from 56% to 37%, and its short-term debt from 42% of total debt to an estimated 10%. MLT’s average debt duration would also be stretched from 2.15 years to about three years.

• FY08 DPU forecast raised; but target price lowered to S$0.85 (from S$1.00). The rights issue is a bitter pill that needs to be taken, in our view, in order for MLT to break out of its high gearing. We have raised our FY08 DPU forecast of 5.4cts to 7.6cts, after adjusting for a shorter 4-month dilution effect. Following this, our DDMderived target price rises to S$1.03 (discount rate 8.0%) from S$1.00. At the rights offer price of S$0.73, dividend yield for FY08 is 10.4% while price upside potential of 38% is higher than for its peer, A-REIT (AREIT SP, Outperform, S$2.20, target price S$2.60) (yield 6.6%, price upside 18%). But as we see risks of a share overhang after the rights issue, we have brought our target price down to S$0.85, which is MLT’s estimated book level post-dilution. Maintain Neutral.