MapleTree – DBS

Internal boost

Comment on Results

MLT reported strong 1Q08 results. Gross revenue grew 48% y-oy to S$42.6m, while NPI rose 45.5% to S$37.4m. Contributions from 23 properties acquired in the past year and positive rental reversions that were secured at c. 29% above preceding rents had lifted bottomline. Distributable income of S$21m (DPU: 1.9cts) was 6.7% higher y-o-y and c.10% above our and consensus estimates. The main swing factor was interest cost, which the REIT managed keep low at 2.9% due to declining interest rates.

Looking ahead, MLT expects to benefit from (i) optimizing yields through rental reversions for the remaining 124k sqm of NLA between 2Q08 – 4Q08, (ii) additional income from completion of another eight asset acquisitions throughout FY08F for a total consideration of S$291m. However, gearing is high at 54.7%, which leaves only S$329m of debt headroom before it reaches the regulatory limit.

Recommendation

We have raised our FY08F and FY09F DPU to 7.7cts and 7.9cts to reflect a lower effective interest cost, translating to FY08F and FY09F yields of 7.5%and 7.7%, respectively. Maintain BUY on MLT with DCF-backed target price of S$1.51 (previous S$1.42), a 47% upside from current trading levels. However, the stock is likely to be re-rated only when it de-gears its balance sheet.