MapleTree – CIMB

Treading with care

• In line. 3Q08 DPU of 1.84cts was in line with Street and our expectations, growing 6.7% yoy, only because of a lower-than-expected number of units issued from a recent rights issue. YTD distributable profit of S$69.1m was below our expectation, at only 66% of our full-year forecast. However, this could be attributed to the lagged effect of contributions from announced acquisitions in the year. Gross revenue of S$46.0m was up 19.6% yoy, on contributions from acquisitions completed earlier.

• Completion of acquisition properties. As at 30 Sep 08, the acquisition of Northwest Logistics Park (Phases 1 & 2) and Kashiwa Centre was completed, leaving only two properties for completion in 4Q08. These are the G-force property in Malaysia and ISH Waigaoqiao property in China worth a total of S$45.8m.

• Refinancing worries over for now. MLT has refinanced about S$500m of its debt with proceeds from its rights issue. Total debt has been reduced from S$1,461m to S$1,023m with asset leverage falling to a healthy 36.9% from 56.3%. Debt maturity will not exceed 12% of its total debt over the next three years (Figure 1). MLT has also S$360m of committed working capital lines and term loans received at hand.

• Stable portfolio to provide rental resilience. As at 30 Sep 08, 64.1% of its leases had long tenures exceeding three years, and 35.9% had leases of three years or less. This combination should provide a broad and resilient rental base which is positive in the uncertain economic climate today.

• Changes in assumptions. We remove our earlier assumptions of new acquisitions of S$300m each for 2009-10 in view of the global financial uncertainties. We also remove the discount given for a share overhang from the rights issue. Additionally, we revise our assumption of 70% contribution from new acquisitions to 40% to account for the longer time lag between the announcement and actual contribution.

• Maintain Neutral; lower target price of S$0.60 (from S$0.85). After changes in our assumptions, our DPU estimates for FY08-10 decrease by 0.6-11.1%. Our DDM-derived target price (discount 9.6%) accordingly falls to S$0.60 from S$0.85. We believe that MLT’s rental resilience, healthy leverage and management’s conservatism after the rights issue will yield stable distribution to unitholders despite macroeconomic negatives. Maintain Neutral.