MLT – Daiwa

NPI and borrowing costs below expectations

What has changed?

• Mapletree Logistics Trust (MLT) announced its 1Q10 results on 22 April 2010. Net-property income (NPI) of S$45.77m was 4.0% below our forecast, while distribution per unit (DPU) of 1.50¢ was 3.5% below our forecast.

Impact

• NPI was the major negative variance. Overall occupancy (at 98%) and the arrears ratio (at 1% of annualised gross revenue) were stable. Rental reversions for 1Q10 (3% of the total portfolio and 22% of renewals for 2010) were flat. We believe part of the shortfall was due possibly to a timing issue, as MLT acquired two properties, CEVA (Changi South) in Singapore and Shonan Centre in Japan, in the latter half of the quarter.

• The biggest positive variance was borrowing costs, 14.8% below forecast. MLT’s weighted average annualised interest rate declined to 2.5% as at 31 March 2010, compared with 2.6% as at 31 December 2009. To date, the manager has refinanced S$60m of the S$204m debt due in FY10.

• We have revised up our DPU forecasts by 2.3% for FY10, 0.9% for FY11, and 0.9% for FY12 after adjusting down our NPI assumptions by about 0.3% and borrowing costs by about 11%. Our forecasts do not include any acquisition assumptions.

Valuation

• We have raised our six-month target price, based on parity to our RNG valuation (a finite-life Gordon Growth model), to S$0.87 (from S$0.84) after lowering our core-operating income and cost-of-debt assumptions. Our valuation assumes a blended, effective cap rate of 6.9% (consisting of a discount rate of 8.4% and an internal growth rate of 1.5%) and a blended cost of debt of 3.3%. MLT’s NAV as at 31 March 2010 was S$0.867.

Catalysts and action

• We maintain our 3 (Hold) rating for MLT as the units look fully valued to us, and we think accretive acquisitions might be hard to come by in 2010.