MLT – Nomura

Valuers upbeat, risks remain

• Valuers upbeat on asset values

Valuers of Mapletree Logistics Trust (MLT) appear increasingly confident of the outlook for REITs assets as well as the broader industrial market, given that they have chosen to revalue MLT’s portfolio (the first revaluation in 12 months) downwards by a surprisingly modest 0.6%. While rental growth expectations perhaps have slipped, asset values have been underpinned by a compression in capitalisation rates. On our numbers, the Singapore portfolio was valued at an average cap rate of 6.5%, versus 7.0-7.25% for the previous valuations at end-2008. Notwithstanding broader market risks, we have trimmed our portfolio cap rate assumption by 50bp to reflect the valuers’ more upbeat assessment of the portfolio amid stabilising asset values. The 50bp decline in cap rates, as well as marginal adjustments to the underlying achieved rents (on the back of slightly better 4Q09 earnings), results in our asset valuation rising by 11.6%, which flows directly to our revised intrinsic NAV of S$0.60/unit.

• Risks remain in the industrial sector

We still envisage risks in the industrial market – weakening demand and risks of negative reversions following a 29.2% y-y decline in industrial rents over the course of 2009 (according to Jones Lang La Salle) as warehouse vacancy rises to 10.0%.

• Price target revised to S$0.60/unit; maintain REDUCE

A 50bp cut in our portfolio cap rate assumption resulted in an 11.3% increase in our gross asset valuations. Following adjustments to our model to reflect: 1) new acquisitions and 2) lower interest expenses, our forecast FY10 DPU is raised to S¢5.8 versus (S¢5.1 previously) delivering a FY10 yield of 7.4%. Our intrinsic NAV rises to S$0.60/share, though valuations prompt us to retain our REDUCE call.