Author: tfwee
MapleTree – OCBC
Upgrade on recent correction
Growth again due to acquisitions. Mapletree Logistics Trust (MLT) reported another good set of results. 3Q07 revenue was up over 79% YoY and 11% QoQ at S$38.5m, and distributable income improved 79% YoY and 8% QoQ to S$19.1m. Distributable income per unit (DPU) was in line with sequential bottom-line growth, improving by 30% YoY and 8% QoQ to 1.72 cents. The result is better than OIR’s forecast of 1.50 cents. The bulk of the sequential growth came from the acquisition of 9 properties bought over the previous quarter. MLT management indicated that earnings from acquisitions generally lag by about a quarter. In 3Q, only 3 assets were completed so we cannot expect a robust growth in 4Q07. Finally MLT has about 13 properties pending completion worth about S$295m and when completed, its asset value should rise to about S$2.43b from S$2.13b at 3Q07.
Likely penetration of Vietnam and South Korea. Presently MLT’s income exposure continues to be Singapore biased. Singapore makes up about 52% (58% in 2Q07) of group NPI, followed by Hong Kong (30%), Japan (13%), Malaysia (3%) and China (2%). Going forward into 2008, we expect MLT to continue to diversify its income and to enter into more new markets. Vietnam is likely to be the next new market followed by South Korea, Vietnam and possibly even India.
Gearing limit to be reached soon. Since its 2Q07 results, MLT has announced 4 more acquisitions. These assets to be acquired will cost a total of S$129m. Together with previously announced acquisitions, MLT has or will be spending a total of S$295m. The implication is that its asset base will increase from S$2.13b (at 3Q07) to S$2.43b fairly soon. As all the recently announced acquisitions are likely to be debt funded, MLT’s gearing will rise to 62%. The implication is that an equity raising exercise is probably on the cards within the next 6 months.
Upgrade to buy on recent correction. Since our HOLD downgrade in May, MLT has corrected nicely from S$1.48 to the present S$1.19 or by about 20%. More importantly, its price to book ratio has also come down from over 1.74x in May to a more reasonable 1.42x now. Our previous downgrade was purely on the back of valuation, so in light of the recent correction we are seeing value in MLT. We thus upgrade our rating on MLT from a Hold to BUY and keep our fair value of S$1.50.
MapleTree – BT
MLT’s Q3 distributable income up 79%
The trust’s target is to have a portfolio worth at least $5b by 2010
MAPLETREE Logistics Trust (MLT) yesterday said its third quarter distributable income rose 78.9 per cent to $19.1 million – from $10.7 million a year ago – as revenue was boosted by contributions from 25 new properties the trust acquired during the year.
MLT’s distribution per unit (DPU) came to 1.72 cents, up 30.3 per cent from the DPU of 1.32 cents for the corresponding three months last year.
Net property income increased 76.1 per cent to $33.9 million from $19.2 million.
For the first nine months of the year, MLT’s distributable income rose 82 per cent to $52.1 million, while DPU climbed 32.7 per cent to 4.79 cents.
The trust’s asset base grew significantly over the last year, adding to its revenue, MLT said.
As at Sept 30, 2007, the trust’s portfolio had 61 properties, compared to 36 properties a year ago. These 61 properties have a book value of over $2.1 billion.
Another 13 property acquisitions worth some $295 million in all have also been announced and are pending completion.
‘For the current year-to-date, we have completed $687 million of acquisitions and have another $295 million of acquisitions that have been announced but are pending completion,’ said Chua Tiow Chye, chief executive of MLT’s manager.
‘This means that we have achieved 98 per cent of our $1 billion target for 2007.’
Once the pending acquisitions are completed, MLT’s portfolio would comprise 74 properties with a book value of about $2.4 billion. The trust’s target is to have a portfolio worth at least $5 billion by 2010.
Mr Chua added that MLT will probably buy the 254,000 sq ft Mapletree Logistics Centre in Vietnam from its sponsor Mapletree Investments by the end of this year.
The acquisition will mark the trust’s first foray into Vietnam. Right now, all of MLT’s properties are in Singapore, Malaysia, Japan, Hong Kong and China, but the trust has also identified Vietnam, India, South Korea, Taiwan and Thailand as attractive markets as it aims to have a more geographically diversified portfolio.
‘We hope that by this time next year, we will have some assets in Thailand and South Korea,’ said Richard Lai, deputy chief executive of MLT’s manager.
For the next financial year, more contributions from Japan, China and Malaysia are expected, MLT said.
MLT’s shares closed two cents up at $1.19 yesterday.
MapleTree – CIMB
Acquisitions powered growth
• 3Q07 results in line. MLT’s 3Q07 DPU grew 30% yoy to 1.7cts, bringing YTD DPU to 4.7cts. This represents 75% of consensus and our forecast of 6.4cts for FY07.
• Acquisitions powered growth. Growth through acquisitions continued to power MLT’s growth (refer to our earlier report dated 24 Oct). As at 3Q07, MLT’s portfolio comprised 61 properties, up from 36 in 3Q06. In addition, there were 13 properties pending completion. As a result, revenue increased 12.7% qoq to S$38.5m. Net property income margins averaged 88% in the last four quarters, indicating relatively low property expense over revenue. Gearing was 54.6% as at 3Q07, approaching the 60% regulatory limit. As MLT will continue to make acquisitions, it intends to resort to equity fund-raising in 1H08.
• Rental escalation potential. MLT has a balanced portfolio of long leases (longer than three years with built-in rental escalation) and short leases (less than three years with the potential for rental escalation). Rental reversions have been strong in Hong Kong and China, at 13% and 39% respectively. Occupancy for the entire portfolio is 99.9%.
• Expect more geographical diversification. We expect acquisitions from new emerging markets such as India, Taiwan and Thailand. These would dilute the share of contributions from Singapore, currently at 52%, a positive diversification. In addition, sponsor Mapletree Investments is incubating some 10 development projects in China, Malaysia and Vietnam worth S$846m, which could be injected into MLT’s portfolio when completed.
• Maintain Outperform. With MLT steadily working towards its S$5bn portfolio target by FY10, we expect our DPU estimate of 7cts for FY08 to be achievable. We reiterate our Outperform with a DDM-based target price of S$1.65. This is premised on a cost of equity assumption of 6.9%.
MI-REIT – Phillip
MI-REIT reported its half-year result which is largely inline with forecast. MI-REIT recored a net property income of $5.9 million for the 2nd quarter. Distributable income rose 23% from $3.94 million in 1QFY08 to $4.85 million in 2QFY08, translating to a same percentage increase in DPU from 1.52 cents to 1.86 cents. At the same time, MIREIT annouces its fourth acquisition of a logistic/warehouse facility at an acqusition price of $20.8 million.
Developments to-date. MI-REIT announces its fourth acquisition of 11 Changi South St 3 at an acquisition price of $20.8 million. The property has an initial yield of 7.23% with an NLA of 11,547sqm. The acquisition is slated for completion by 4QFY08. Total acquisitions to-date amount to $146.9 millon. The acquisition improves both the asset mix as well as the lease expiry profile. WALE improves to 6.8 years assuming completion of all annouced acquitions. Revaluation on 12 of the initial properties was carried out in September and has resulted in a revaluation gain of $37.8 million to the book value. Asset size now stands at $370.8 million from the initial $316.2 million.
Future developments. MI-REIT has a pan-Asian focus to diversify across the Asian region. With an acquisition target of $500 million annually, we would expect more acquisition news to roll out in the coming months. MI-REIT has an additional $190.7 million debt room to utillise. Current gearing of 11.6% allows much flexibility to play with.
Recommendation. Our fair value represents a 19.8% upside from the closing price of $1.16 and a P/NAV of 1.07 against an SREIT average of 1.27. The stock is currently trading below its NAV of $1.29, which represents the intrinsic value of a REIT. We notice the REITs sector is underperfoming the broad market recently and feel that due to euphemism in some other sectors, market sentiment is generally lacking towards REITs. Our general view is that REITs are defensive in nature with the investment aim of providing long term stable distributions to unitholders. Interested investors should capitalise on market downturn to lock-in the higher yields achievable. Reiterate BUY with a fair value of $1.39.
Valuation. We adjust our earnings estimates in accordance with the acquisition. In view of the present market nature, we revise our valuation matrix across the REITs sector to better reflect the current market nature and to incorporate a more robust valuation. Key change to our assumption includes a 0% terminal growth from a 2% previously. Our fair value remains unchanged at $1.39. Our forecasted DPU of 7.41 cents for FY08 and 8.03 cents for FY09, which translates to a yield of 6.38% and 6.92%.