Author: tfwee
MapleTree – Daiwa
An enticing deal (assuming smooth execution)
What has changed?
• Mapletree Logistics Trust (MLT) announced on 6 November the launch of a private placement of 115m units to raise S$79-82m to partly finance three acquisitions worth S$145m.
Impact
• The acquisitions identified are two Singapore warehouse facilities for S$43m (for the 7 Penjuru Close property) and S$34m (for a multi-storey warehouse in eastern Singapore) with net-property income (NPI) yields of above 9%, and a single-user warehouse facility in the greater Tokyo region of Japan for S$68m with an NPI yield of over 7% (compared with MLT’s current Japanese asset portfolio NPI yield of 4.5%). The manager expects completion by the end of 2009 for the two Singapore properties and by 1Q10 for the Japan property.
• We have assumed that the placement will be completed in mid-November at S$0.69 per unit (the low end of the S$0.69-S$0.71 range) and MLT will raise net proceeds of S$78m. We have lowered our distribution-per-unit (DPU) forecast by 0.7% for FY09 (due to placement dilution and no NPI benefit from the acquisitions until the start of FY10), and have raised our DPU forecasts by 1.5% for FY10 and 0.6% for FY11.
• The sponsor, Mapletree Investments, will not participate in the placement. We expect its stake to decline from 46.9% to 44.3%, which would improve slightly MLT’s free float and trading liquidity.
Valuation
• We have raised our six-month target price, based on our RNG valuation method (a finite-life Gordon Growth Model), to S$0.81 (from S$0.80) after rolling over our core-operating distribution forecast to FY10 (from FY09) to capture the estimated contributions from the new acquisitions (as well as the impact of the financing assumptions). MLT trades at a 12-month forward yield of 8.2%, based on our revised DPU forecasts.
Catalysts and action
• We maintain our 3 (Hold) rating for MLT. We regard any acquisition-linked equity fundraising positively if it is DPU accretive, and we estimate a modest accretion for this deal from FY10.
• However, we are wary of execution risk, because if there is any hitch in the placement or if any one of the acquisitions fails to be completed in a timely manner, the MLT unit price could be hit badly, in our opinion.
MapleTree – JP Morgan
Incorporating proposed acquisitions and EFR
• Acquisitions and EFR announced. MLT today proposed a private placement of 115million new units to raise S$79 – 82million equity capital, at 8.3 – 8.6% FY09E dividend yield. The net proceeds will be used to finance 3 potential acquisitions with a total value of S$145million, and a weighted average entry yield of 8.4% according to management. Post proposed acquisitions and EFR, gearing for the trust will remain at 38%, and we estimate very modest accretion towards the trust DPU.
• A step forward, but smaller than expected. MLT management has moved into the ‘new strategy’ this year in which they will try to bundle acquisitions together with permanent/stable funding structure being put in place. A successful close of both proposed EFR and acquisitions would signal a step forward for management’s execution capability in our view, but the size of the EFR is smaller than our expectation.
• Fine tuning our estimates. We have fine tuned our estimates to reflect a better than expected earnings announced earlier during results and to incorporate the proposed acquisitions and EFR, assuming done at the bottom of the range. Our DPU estimates for FY09 – FY11 have, as a result, been raised by 3 – 6% and our 1-year forward NPV raised to S$0.67/unit, from S$0.65/unit based on discount rate of 9.4% and LT growth assumption of 0.5%.
• We maintain our Neutral rating on MLT, with Dec-10 DDM based price target raised to S$0.67/unit due to earnings revision above (S$0.65/unit previously). Key risks to our rating and price target include a better than expected rental reversion cycles and management executions on the upside, or a re-tightening of the credit market and management’s inability to close both acquisitions and EFR successfully on the downside.
Rickmers – DBS
No progress yet in talks with lenders
At a Glance
• 3Q09 DPU payout of 0.60UScts at par with 2Q09
• Revenue pressures mount as Hanjin vessels scheduled for delivery are delayed owing to lack of funding
• Valuations look expensive, in our opinion, compared to more stable peers (currently trading at ~9% FY10F yield)
• Maintain SELL and cut our TP to S$0.30
Comment on Results
There were no surprises, from an operational point of view, in 3Q09 results. Distributable income and revenues were quite stable on a q-o-q basis, at US$19.7m and US$38.1m, respectively. Net profit of US$9.2m included US$3.3m of MTM losses on interest rate hedges, as the market disruption clause imposed by one of its lenders during the quarter rendered the hedge ineffective.
Outlook & Recommendation
Revenue pressures are expected to mount from FY10 as charterer Maersk has tendered that it will exercise the early termination option on Maersk Djibouti and redeliver the vessel to RMT on 1st February 2010. The vessel is unlikely to find re-employment immediately, given the global glut in container fleet supply.
Additionally, the Group has been unable to take delivery of the 2nd Hanjin vessel, Hanjin Milano, which commenced its charter with Hanjin from Oct 1st and is currently being warehoused by Polaris Shipmanagement, a Rickmers Group company. Two other Hanjin vessels are also up for delivery over the next 3 months and we believe it is unlikely that the Group will be able to recognise revenue from these charters in the near term. While Rickmers has roughly US$200m of undrawn credit facility at this point, the facility will be frozen till negotiations with lenders are concluded.
We estimate RMT will continue to pay out 0.60UScts DPU in the near term, and may suspend distributions in the worst case, if unable to negotiate a solution to its balance sheet woes – namely LTV covenants, bullet loan repayment of US$130m in April 2010 and financing for the 4 x 13,000 TEU Maersk vessels due in 2010. Hence, we maintain our SELL call and cut TP to S$0.30, on the back of lower future DPU assumptions (in line with lower revenue).
MapleTree – DBS
A small but significant step forward
• Placement of new units for acquisitions
• Impact on DPU is small but signifies management intent on growing unitholder value
• Maintain BUY, TP S$0.84
Placement of 115m new units to grow portfolio. Mapletree Logistics Trust (MLT) announced a placement of 115m units to raise cS$79m (priced @ S$0.69, 5.6% discount to VWAP). Proceeds are expected to partially finance its target acquisition of 3 properties worth cS$145m in Singapore and Japan. The target assets come with secured leases, averaging 5- 8 years and in-built growth of 2% for the Singapore assets. This, in our view, should further improve MLT’s income visibility and stability going forward.
+1% accretion to forward DPU estimates. Based on an EBITDA yield of 8.4% for the new assets, our estimated FY10-11F DPU estimates are nudged upwards by c1% to 6.0 – 6.2 Scts after accounting for dilution from the new placement units. We adjust our estimates slightly downwards in 2009 to account for the slight dilution from new units in 4Q09.
Post this placement and completion of the 3 acquisitions, gearing is expected to remain at c38%.
Maintain BUY, TP S$0.84. This current acquisition plan while small in size, is a signal of the manager’s intent and focus at growing shareholder value while not over-leveraging the trust’s balance sheet. We are attracted by MLT’s prospective FY10F-11F yield of 8.2%-8.4%, underpinned by its DPU of 6-6.2 Scts which could continue to grow when the manager further executes on its growth plans. Current closing price offers a total return of 22% to our target price.
MapleTree – OCBC
Protecting loan-to-value through placement, acquisitions
Raises equity via private placement. Mapletree Logistics Trust (MLT) has successfully completed a private placement of 115m new units or 5.9% of the existing unit base. The issue price is 69 S cents, at a 6.1% discount to Friday’s closing price of 73.5 S cents. Note that existing unitholders will receive an advance distribution of 0.74 to 0.76 S cents for the period from 01 Oct to the day prior to the issue of the new units on 18 Nov. Both existing and new units will be entitled to receive income for the latter half of 4Q09.
Plans to acquire three properties. The manager intends to use the gross proceeds of S$79.4m to finance the acquisitions of two industrial properties in Singapore. The vendors / lessees of both single-user facilities are repeat tenants and the purchases are expected to be completed by end-Dec 2009. MLT will then use the increased debt headroom to acquire a single-user warehouse facility in Japan’s Greater Tokyo region for about S$68m or JPY4.42b by 1Q10. All three buys have long leases of five to eight years.
Attractive yields. After all transactions are completed, the manager expects MLT’s gearing to be roughly 38.5%, which is similar to the current gearing level of 38.1% as of October. NPI yields on the two new Singapore properties are above 9%, higher than the current NPI yield of the current Singapore portfolio of roughly 6.5%1 and the distribution yield of 8.1% on annualized 9M09 DPU. Additionally, the manager expects the NPI yield on the Japan property to exceed 7% which is significantly higher than the current NPI yield on MLT’s Japan book of about 4.5%.
Protecting LTV of portfolio. MLT has been talking about some sort of equity/acquisition combination for some time now so this move is not surprising. While the absolute gearing level is unchanged, we believe the primary purpose of these transactions is to support the loan-to-market value ratio for the portfolio. We expect a (still) tough industrial market to impact revaluations this quarter. The big yield gap highlighted here as well as MI-REIT’s [NOT RATED] recent revaluation exercise (property values fell 11.1% over the past six months) supports this view. Using equity to acquire assets instead of repaying loans potentially allows MLT to catch any upside as the sector recovers. Our S$0.78 fair value had priced in a cash call and remains unchanged. Maintain BUY on 14.5% total return.
Advanced distribution for existing units. Note the manager is guiding for an advanced distribution of roughly 0.74 to 0.76 S cents for existing unitholders only. This is for the period from 01 Oct to the day prior to the issue of the new placement units (expected issue date: 18 Nov). The income for the latter half of 4Q09 will be distributed to both existing and placement units as per usual.
More on the acquisitions. All three acquisitions are single-user facilities. The Singapore purchases will be leased back to their respective vendors on a triple net basis (tenant covers outgoings such as land rent, property tax and property maintenance expenses). The Japan acquisition will be leased to the sitting tenant. All three assets have long leases of five to eight years. The two Singapore properties have options to extend the lease, and the leases also have built-in step-up escalations of 2% per annum in rental from the second year onwards.