Category: MLT
MLT – DBSV
On growth path
At a Glance
• Portfolio strength through stability and diversity
• Evaluating BTS opportunities
• Maintain Buy, TP $0.93
Comment on Results
Results meet street estimates. MLT reported 1Q10 results that were in line. Gross revenue fell 3.5% yoy (+1.2% qoq) to $51.4m while NPI dipped a smaller 0.9% yoy (+1.9% qoq) to $45.8m thanks to successful cost management initiatives. Distribution income grew 7.8% yoy to $30.8m (DPU 1.5cts) thanks to a 25% yoy reduction in interest cost as the group refinanced its borrowings at lower rates. During the quarter, MLT recognized $13.1m of revaluation gain from one of its properties (0.4% of portfolio value), which resulted in book NAV rising to $0.87/unit.
Resilient portfolio. Occupancy at MLT’s portfolio remained steady at 98% supported by a diversified and stable tenant base and long leases. According to management, rental outlook for 2H10 has turned slightly upbeat with increased enquiries for space on the back of economic recovery. This would enable the group to benefit with a remaining 12.5% of NLA to be renewed this year, mostly in HK and Spore.
Acquisitions and new forays into BTS opportunities. One of MLT’s much touted growth drivers is via acquisitions. Apart from third party targets, it can also tap its sponsor’s pipeline in Vietnam, China and Malaysia. Recent tie-up between sponsor and Itochu to develop US$300-500m of logistics projects over the next 3-5 years would further expand this pipeline. MLT’s current balance sheet is healthy with gearing of 38.6% and interest cover of 6.2x.
In addition, MLT is currently looking to venture into built-to-suit (BTS) activities both in Singapore and overseas. It can undertake up to $300m of development properties based on its current $3bn portfolio value. While we see this as taking development risk, this will likely be compensated by better returns on cost.
Recommendation
Buy, TP maintained at $0.93. Despite the recent share price rise, MLT continues to offer investors attractive prospective yield of 6.9-7.3%, backed by secure income streams. In addition, growth drivers such as new acquisitions remain highly visible from its sponsor while potential ventures into the built-to-suit arena are likely to provide further upside to our valuations in the medium term. Our current estimates have factored in only $150m worth of new buys in FY10.
MLT – BT
MapletreeLog DPU rises 2% in Q1
Distributable income climbs 8% on lower property expenses and borrowing costs
MAPLETREE Logistics Trust (MLT) yesterday reported an 8 per cent climb in first-quarter distributable income to $30.8 million from $28.6 million a year earlier.
Distribution per unit (DPU) rose 2 per cent to 1.5 cents from 1.47 cents a year ago.
Distributable income rose as the logistics trust lowered property expenses and cut down its borrowing costs by reducing interest costs and lowering the leverage – even as revenue fell year-on-year as portfolio occupancy dipped.
MLT’s gross revenue fell 3.5 per cent to $51.4 million for the three months ended March 31, 2010 from $53.3 million a year ago. Revenue fell due to lower rental revenue from the trust’s Hong Kong and China properties (mostly due to higher vacancies), although this was offset by higher revenue from Singapore and Japan properties (mainly due to the additional properties). Overall portfolio occupancy dipped slightly to 98 per cent from 99 per cent a year ago.
MLT said that the economic environment has shown signs of improvement – but not across the board in all the geographies in which MLT operates. Sentiments remain cautious, the trust added.
‘We think there is still some time for the absorption of the vacant space, especially in Hong Kong, before the rentals can move up,’ said Chua Tiow Chye, chief executive of the trust’s manager. But this could happen for some markets in the second half of this year, he added.
The trust is already making plans to buy more properties. The trust completed the acquisition of two properties in Q1 2010, one each in Singapore and in Japan.
MLT’s sponsor Mapletree Investments and partner Itochu plan to develop logistics projects of approximately US$300-500 million over the next three to five years, which will be offered to MLT on a right of first refusal basis.
‘We are looking to possibly bring some of these assets over in the course of this year or next year,’ said deputy chief executive officer Richard Lai.
MLT’s portfolio comprises 84 properties with a total book value of $3.0 billion. More than half of the properties are in Singapore, while the others are in Malaysia, Japan, Hong Kong, China and South Korea.
MLT also said in an update that it has $1.2 billion of debt as at end Q1, of which around $145 million is due for refinancing over the rest of the year.
MLT’s shares gained 1.5 cents to close at 87.5 cents yesterday.
SREITs – OCBC
1Q10 results preview
In 1Q10, YoY DPU improvements for most... The majority of the S-REIT universe will report 1Q CY10 results over the next two weeks, with CapitaCommercial Trust (CCT) kicking off the season on 16 Apr. Within our coverage universe, we expect Ascott Residence Trust (ART) to show a YoY improvement in DPU on the back of stronger occupancy rates and RevPAU1 . Based on our estimates, Mapletree Logistics Trust and Frasers Centrepoint Trust (FCT) could also see a YoY pick-up in DPU for the quarter due to a boost from recent acquisitions. FCT’s earnings in the preceding year were also impacted by asset works. CapitaMall Trust may also post a YoY increase in DPU as the REIT retained part of its distributable income in 1Q09. We expect Ascendas REIT to report stable operating performance, with this quarter’s DPU up 2.8% YoY.
…but not all. On the other hand, we expect Suntec REIT to report a YoY decline in DPU due primarily to a larger unit base (roughly 1.8b units now versus 1.6b units a year ago). We also estimate that CCT may record a YoY fall in DPU due to dilution from its 2009 rights issue. Meanwhile the Indonesian Rupiah continues to re-rate strongly (6596 IDR/SGD on average in 1Q10 versus 7701 IDR/SGD in 1Q09). The IDR’s ascent over the hedged rate employed by LMIR Trust could impact YoY DPU performance despite a stronger portfolio that has seen steady improvements in occupancy.
Leaping or waiting? Our primary focus this season is on the tone of manager guidance. REIT managers have been fairly aggressive and opportunistic in 2010 so far, with a sizeable S$1,218m worth of acquisitions announced year-to-date. The equity market was also active with FCT’s S$182.2m placement and the listing of Cache Logistics Trust [NOT RATED], whose S$417.3m IPO was 7.8x subscribed. The question is what happens next – market worries about how the second half of this year pans out have been well-documented and the consensus view is for a rather benign economic recovery. How this corresponds to/deviates from REIT managers’ guidance of individual earnings performance will be important to watch. Additionally, the delicate balance between 2H10 uncertainties and market appetite may prompt REIT managers to launch acquisition/fund raising plans sooner rather than later. How managers lay out acquisition and debt re-financing plans will also be worth tracking, in our view. We maintain our OVERWEIGHT stance on the sector. Top picks are ART and Suntec.
SREITs – DBS
Upside for Industrial REITS
• Room for earnings upgrade for industrial reits
• Hospitality reits to lead earnings growth in 1Q10
• Prefer industrial, retail and hospitality reits
• Top picks – ART, CDL HT, MLT, FCT, AiT
1Q earnings growth driven by economic recovery and acquisitions. We expect Sreits earnings momentum to continue into 1Q10, led by hospitality reits. Hospitality Reits should grow by at least 10% qoq in 1Q10, owing to a secular sector recovery while industrial reits should enjoy sequential mid single digit earnings uplift from new acquisitions. Retail reits are likely to show modest growth on the back of improving retail sales and office reits are likely to see marginal qoq increase, given the previous high base in rents.
Raising our earnings projection for the industrial Sreits. Looking ahead, we see 3 catalysts for Sreits – organic growth, acquisitions and refinancing into current lower interest cost environment. We have raised our earnings estimates for industrial Sreits by 1.5-4% to factor in potential new acquisitions in FY10. On the operating front, the pick up in economic activity has resulted in increased leasing enquiries, particularly for logistics warehouse, light and hi-tech industrial space. Rental hikes in 1H are likely to remain modest, although we anticipate this trend will be more evident in 2H10. Suburban retail rents have benefited from rising retail sales and a nascent recovery in rental pricing power.
Interest burden to reduce on refinancing options. The present window of opportunity for refinancing exercises at competitive rates have brought our attention to the possible uplifting impact of reduced interest burden on earnings. Potential beneficiaries would include reits with debt refinancing due this year and next such as CCT, CMT, Suntec, K-reit and Starhill Global. This has not been factored into our existing forecast.
Going for alpha. Sreits have outperformed developers YTD and are currently trading at DPU yields of 7.4%. Our 12-month price target translates to a projected yield of 6.5%, or 13% upside from here. Our strategy for Sreits would be to look for alpha, given the outperformance to date. We continue to favour the hospitality, retail and industrial segments, that offers the greatest upside based on our price objectives. Our top picks include CDL HT, ART, FCT, Ascendas India and MLT. The risk to our view is the prospect of rising long bond yields, which could drag on share price performance.
REITs – OCBC
Upgrading view to OW; Ascott & Suntec top picks
4Q CY2009 results review. Five out of the eight S-REITs under our coverage reported earnings in line with our estimates, with quarterly DPU differing 0-4% from our estimates. A- REIT, Mapletree Logistics Trust (MLT), and CapitaCommercial Trust (CCT) beat our DPU estimates by 9%, 9.5% and 17.5% respectively.
Significant activity year-to-date. In the past two months, the S-REIT sector has announced a sizeable S$1,218m worth of acquisitions. These have primarily been funded on the back of proceeds from equity issues completed in 2009 and 2010. K-REIT [NOT RATED] and CDL Hospitality Trusts [NR] made their maiden foray outside of Singapore into Australia. We believe this was primarily motivated by a search for value – distressed or even stressed opportunities are currently more plentiful in regions such as Australia and Japan vis-à-vis Singapore. Meanwhile, CCT agreed to divest Robinson Point for S$203.3m or roughly S$1527 per square feet of net lettable area to a private real estate fund. It also announced it was exploring options to re-develop Starhub Centre and change its use to a mix of residential and commercial. The equity market was also active with Frasers Centrepoint Trust raising S$182.2m to fund the purchase of two retail malls from its sponsor. ARA Asset Management [NR] and CWT Ltd [NR] also announced plans to launch a new logistics REIT. We expect REIT managers to continue down the acquisition path with stressed opportunities emerging as the broader market deleverages and with investors demanding yield growth. In turn, this growth push is likely to require further equity issues due to increased leverage conservatism.
Upgrading sector view. In a volatile market, we believe yield is an increasingly important contributor of overall return. Greater visibility may also drive further price-to-book compression. Ascott Residence Trust continues to be one of our top picks as a proxy to corporate investment and travel. We replace MLT with Suntec REIT as our second top pick on Suntec’s often over-looked retail portfolio and a possible shift in sentiment towards office REITs on increasing leasing activity, active supply management, and a slowing rate of decline in office rents. MLT continues to be a viable investment option, in our view, for investors seeking yield and stability. We upgrade our view on S-REITs to OVERWEIGHT from NEUTRAL. Key risks to our thesis are macro-economic risk, interest rate hikes (more of an issue for big caps REITs that have re-rated strongly, in our view) and an uncertain policy climate (the easy liquidity regime has to end at some point).