MapleTree – DBS

Sterling Results

Story: MLT posted a set of sterling 2Q08 results, with topline and NPI rising c28% yoy and c3% sequentially to $43.8m and $38.3m respectively, in line with expectations. Distributable income rose a better 7.6% qoq to $22.6m (DPU: 2.04cts), helped by lower interest expense as effective borrowing cost dipped to 2.7% from 2.9% a quarter ago. The better performance was primarily due to contributions from 18 additional properties while organic rental improvement from assets in HK and Singapore also shored up bottomline.

Point: Going forward, MLT’s regional yield plus growth strategy is still intact. While acquisition pace may moderate due to a quieter property market, this is likely offset by higher total return benchmarks set for new acquisitions. Positive rental reversions from its HK and Singapore assets and asset enhancement initiatives should also boost bottomline. Shareholders approved a 3-for-4 rights issue at $0.73 apiece to raise $607m to partially fund new purchases and pare down debt. This will lower gearing to 38%, giving it room to tap new sponsor and third party purchases. Post-rights, it has $330-$640m of debt headroom for new buys, assuming a debt/asset ratio of 45-50%.

Relevance: We remain positive on MLT’s prospects in the medium term with a strengthened balance sheet, which gives it room to tap new opportunities for growth. While short-term share price performance may be dampened by DPU dilution in 2H08 and potential overhang from the new unit issue, we believe this has been largely reflected in the share price. The stock is currently trading at 8.1-9.0% yield based on post-rights FY08 and FY09 DPU of 6.7cts and 6cts. Our adjusted price target of $1.04, assumes $550m of new acquisitions in FY09.