MapleTree – Daiwa

An enticing deal (assuming smooth execution)

What has changed?

• Mapletree Logistics Trust (MLT) announced on 6 November the launch of a private placement of 115m units to raise S$79-82m to partly finance three acquisitions worth S$145m.

Impact

• The acquisitions identified are two Singapore warehouse facilities for S$43m (for the 7 Penjuru Close property) and S$34m (for a multi-storey warehouse in eastern Singapore) with net-property income (NPI) yields of above 9%, and a single-user warehouse facility in the greater Tokyo region of Japan for S$68m with an NPI yield of over 7% (compared with MLT’s current Japanese asset portfolio NPI yield of 4.5%). The manager expects completion by the end of 2009 for the two Singapore properties and by 1Q10 for the Japan property.

• We have assumed that the placement will be completed in mid-November at S$0.69 per unit (the low end of the S$0.69-S$0.71 range) and MLT will raise net proceeds of S$78m. We have lowered our distribution-per-unit (DPU) forecast by 0.7% for FY09 (due to placement dilution and no NPI benefit from the acquisitions until the start of FY10), and have raised our DPU forecasts by 1.5% for FY10 and 0.6% for FY11.

• The sponsor, Mapletree Investments, will not participate in the placement. We expect its stake to decline from 46.9% to 44.3%, which would improve slightly MLT’s free float and trading liquidity.

Valuation

• We have raised our six-month target price, based on our RNG valuation method (a finite-life Gordon Growth Model), to S$0.81 (from S$0.80) after rolling over our core-operating distribution forecast to FY10 (from FY09) to capture the estimated contributions from the new acquisitions (as well as the impact of the financing assumptions). MLT trades at a 12-month forward yield of 8.2%, based on our revised DPU forecasts.

Catalysts and action

• We maintain our 3 (Hold) rating for MLT. We regard any acquisition-linked equity fundraising positively if it is DPU accretive, and we estimate a modest accretion for this deal from FY10.

• However, we are wary of execution risk, because if there is any hitch in the placement or if any one of the acquisitions fails to be completed in a timely manner, the MLT unit price could be hit badly, in our opinion.