MapleTree – OCBC

Relative stability

Relative stability. Deteriorating macroeconomic conditions have dampened the outlook for the industrial REIT/property sector. This, combined with rising supply, is likely to exert pressure on industrial rents. Compared to the office sector however – which saw a huge spike in rental and capital values over the past couple of years – we expect less downside here. Instead, we believe occupancy will be the key performance driver in the industrial space. We estimate that Mapletree Logistics Trust (MLT) can maintain a dividend yield of about 10% even with a bear case 80% portfoliowide occupancy scenario (versus 99.6% today). MLT’s suite of sale-andleaseback properties should partially shelter the REIT from lease renewals and occupancy worries. However, about half of the portfolio consists of multi-tenanted buildings that are more exposed to the vagaries of the market. We like MLT’s diversified (81 properties in six countries) and high quality (we expect occupancy to remain higher than average) portfolio.

Equity issue done and dusted. Unlike some other S-REITs who chose to wait and ‘ride out’ the market, MLT went through the pain of raising fresh equity in August 2008. The 3-for-4 rights issue at an issue price of S$0.73, versus current share price of S$0.39, brought in some S$606.7m in proceeds. MLT’s debt-to-asset ratio now stands at 0.385x as of 31 Dec 2008. About S$217m of debt is up for refinancing in 2009 (18.8% of total debt). Of this amount, about S$83m are term facilities maturing this year. The remaining S$135m are working capital lines which are reviewed annually. The manager said that while it expects the working capital lines to be renewed, MLT has sufficient committed lines to meet its entire FY09 debt obligations.

BUY with fair value of 45 cents. We expect cap rates to widen in line with weaker fundamentals. Our SOTP valuation of MLT is S$0.50 – this is equivalent to a 30% fall in capital values against most recent valuations. As we outlined in our Dec 2008 strategy report, we are selective buyers of industrial S-REITs. We expect news flow to be primarily negative over the next few months as the ‘real economy’ – as well as MLT’s tenants and endusers – start feeling the full impact of the global recession. However, we believe MLT can deliver reasonably stable income to unitholders over the next two years. On this basis, we ascribe a 10% discount to our SOTP value to reach a fair value estimate of S$0.45. We restart coverage of MLT with a BUY rating.