MapleTree – OCBC

Protecting loan-to-value through placement, acquisitions

Raises equity via private placement. Mapletree Logistics Trust (MLT) has successfully completed a private placement of 115m new units or 5.9% of the existing unit base. The issue price is 69 S cents, at a 6.1% discount to Friday’s closing price of 73.5 S cents. Note that existing unitholders will receive an advance distribution of 0.74 to 0.76 S cents for the period from 01 Oct to the day prior to the issue of the new units on 18 Nov. Both existing and new units will be entitled to receive income for the latter half of 4Q09.

Plans to acquire three properties. The manager intends to use the gross proceeds of S$79.4m to finance the acquisitions of two industrial properties in Singapore. The vendors / lessees of both single-user facilities are repeat tenants and the purchases are expected to be completed by end-Dec 2009. MLT will then use the increased debt headroom to acquire a single-user warehouse facility in Japan’s Greater Tokyo region for about S$68m or JPY4.42b by 1Q10. All three buys have long leases of five to eight years.

Attractive yields. After all transactions are completed, the manager expects MLT’s gearing to be roughly 38.5%, which is similar to the current gearing level of 38.1% as of October. NPI yields on the two new Singapore properties are above 9%, higher than the current NPI yield of the current Singapore portfolio of roughly 6.5%1 and the distribution yield of 8.1% on annualized 9M09 DPU. Additionally, the manager expects the NPI yield on the Japan property to exceed 7% which is significantly higher than the current NPI yield on MLT’s Japan book of about 4.5%.

Protecting LTV of portfolio. MLT has been talking about some sort of equity/acquisition combination for some time now so this move is not surprising. While the absolute gearing level is unchanged, we believe the primary purpose of these transactions is to support the loan-to-market value ratio for the portfolio. We expect a (still) tough industrial market to impact revaluations this quarter. The big yield gap highlighted here as well as MI-REIT’s [NOT RATED] recent revaluation exercise (property values fell 11.1% over the past six months) supports this view. Using equity to acquire assets instead of repaying loans potentially allows MLT to catch any upside as the sector recovers. Our S$0.78 fair value had priced in a cash call and remains unchanged. Maintain BUY on 14.5% total return.

Advanced distribution for existing units. Note the manager is guiding for an advanced distribution of roughly 0.74 to 0.76 S cents for existing unitholders only. This is for the period from 01 Oct to the day prior to the issue of the new placement units (expected issue date: 18 Nov). The income for the latter half of 4Q09 will be distributed to both existing and placement units as per usual.

More on the acquisitions. All three acquisitions are single-user facilities. The Singapore purchases will be leased back to their respective vendors on a triple net basis (tenant covers outgoings such as land rent, property tax and property maintenance expenses). The Japan acquisition will be leased to the sitting tenant. All three assets have long leases of five to eight years. The two Singapore properties have options to extend the lease, and the leases also have built-in step-up escalations of 2% per annum in rental from the second year onwards.