MLT – OCBC

Equity issue overhang removed; upgrade to BUY

Announces more acquisitions. Mapletree Logistics Trust (MLT) said it intends to acquire AW Centre, a warehouse asset in Singapore, for S$18.3m through a sale and leaseback transaction. MLT also noted that it was in advanced negotiations on four potential acquisitions, one in Japan and three in Singapore, for approximately S$105m in total. The manager said it expected to complete the five transactions in 4Q10. In Aug, MLT had also announced the acquisition of Multi- Q Centre, its second South Korean asset for approximately S$32m.

Launches EFR exercise. Concurrently, MLT has launched an equity-fund raising (EFR) exercise through a non renounceable preferential offering to existing unitholders as well as a private placement. The preferential offering of ~164.3m new units will be made on the basis of two new units for every 25 existing units, at an issue price of S$0.815 (~7.4% discount to pre-announcement price of S$0.88). Meanwhile, the private placement of 207.3m new units was issued at a price of S$0.825 (6.3% discount). Completed yesterday morning, the placement was over 2x subscribed. We had previously noted that an EFR could be triggered by MLT’s aggressive acquisition spree, which had already brought it close to its 45% medium-term leverage target. Both the quantum and timing of the EFR was in line with our expectations.

Proceeds to fund acquisitions. Excluding the S$145m of assets acquired on the back of the Nov 09 private placement, MLT has announced approximately S$447m worth of acquisitions this year (including the four potential acquisitions). Collectively, the EFR exercise will raise gross proceeds of approximately S$305m, which will be used to partially finance these acquisitions. The EFR will take MLT’s leverage down from about 46% (assuming all acquisitions were debt-funded) to approximately 38%. This is lower than MLT’s 45% medium-term leverage strategy and will allow it to continue to acquire third-party and sponsor-owned assets.

Upgrading on valuations / EFR news. MLT fell 3.4% yesterday to S$0.85 on the EFR announcement; we believe the negative reaction is unjustified as the EFR should have come as no surprise to the market and its terms are fairly competitive. We continue to advocate a buy-on-EFR-news strategy for REITs which have proven track record in executing a virtuous cycle of accretive acquisitions and competitive fundraising; MLT certainly falls in this category. After adjusting for the acquisitions and EFR, our fair value estimate edges up from S$0.89 to S$0.90. Upgrade to BUY (13.2% estimated total return).