Category: MLT
MLT – Nomura
Valuers upbeat, risks remain
• Valuers upbeat on asset values
Valuers of Mapletree Logistics Trust (MLT) appear increasingly confident of the outlook for REITs assets as well as the broader industrial market, given that they have chosen to revalue MLT’s portfolio (the first revaluation in 12 months) downwards by a surprisingly modest 0.6%. While rental growth expectations perhaps have slipped, asset values have been underpinned by a compression in capitalisation rates. On our numbers, the Singapore portfolio was valued at an average cap rate of 6.5%, versus 7.0-7.25% for the previous valuations at end-2008. Notwithstanding broader market risks, we have trimmed our portfolio cap rate assumption by 50bp to reflect the valuers’ more upbeat assessment of the portfolio amid stabilising asset values. The 50bp decline in cap rates, as well as marginal adjustments to the underlying achieved rents (on the back of slightly better 4Q09 earnings), results in our asset valuation rising by 11.6%, which flows directly to our revised intrinsic NAV of S$0.60/unit.
• Risks remain in the industrial sector
We still envisage risks in the industrial market – weakening demand and risks of negative reversions following a 29.2% y-y decline in industrial rents over the course of 2009 (according to Jones Lang La Salle) as warehouse vacancy rises to 10.0%.
• Price target revised to S$0.60/unit; maintain REDUCE
A 50bp cut in our portfolio cap rate assumption resulted in an 11.3% increase in our gross asset valuations. Following adjustments to our model to reflect: 1) new acquisitions and 2) lower interest expenses, our forecast FY10 DPU is raised to S¢5.8 versus (S¢5.1 previously) delivering a FY10 yield of 7.4%. Our intrinsic NAV rises to S$0.60/share, though valuations prompt us to retain our REDUCE call.
MapleTree – BT
MapletreeLog eyeing more properties in S’pore, region
It plans to be more careful in funding purchases; Q4 DPU climbed 8.9%
MAPLETREE Logistics Trust (MapletreeLog) is focusing more on growth this year and is looking at acquisitions in Singapore and the region. But it also intends to be more careful in funding purchases and this could affect the timing of cash calls.
The trust said this yesterday as it posted a net property income of $44.9 million for the fourth quarter ended Dec 31, 2009, which was 0.4 per cent less than that a year ago.
Nevertheless, the amount distributable rose 12.3 per cent to $31.8 million. This was boosted by a $2.5 million consideration from Prima Limited for a lease extension at a Singapore property.
As a result, available distribution per unit (DPU) rose 8.9 per cent to 1.59 cents. This came despite a larger unit base from a $79 million private placement in November last year.
‘We think 2010 is a transition year,’ said Richard Lai, deputy CEO and chief financial officer of the Reit manager at a briefing. While the Reit is building up its acquisition pipeline, ‘we will continue to be quite conservative in terms of how we use our balance sheet’.
Mr Lai explained that the Reit is looking to match borrowings and cash calls more closely. ‘What we are saying is that it will be harder to predict when we have to do an equity fund-raising.’
MapletreeLog is also looking to undertake build-to-suit projects in Singapore and abroad.
MapletreeLog’s leverage ratio as at Dec 31 was 36.7 per cent, down from 38.5 per cent year-on-year. Around $204 million or 19 per cent of its total debt is due for refinancing this year and it has received firm refinancing offers from banks.
The trust’s portfolio comprised 82 properties with a book value of around $2.9 billion as at Dec 31. It was revalued downward by $16.5 million in FY2009. The portfolio occupancy rate was 98.1 per cent, down from 99.6 per cent a year ago.
For FY2009, MapletreeLog reported an amount distributable of $117.9 million, 21 per cent higher year-on-year. DPU was 6.02 cents, down 16.9 per cent.
MapletreeLog gained half a cent yesterday to close at 79 cents.
MLT – CIMB
Competition heating up
• Beat expectations; but maintain Underperform. FY09 results exceeded consensus and our expectations (107% of our estimate). We change our assumptions to reflect acquisitions requiring debt and equity funding, and lower our cost-of-debt assumptions. Our FY10-11 DPU estimates fall by 3-4%. We also introduce FY12 estimates. Following our adjustments, our DDM-target price falls to S$0.74 from S$0.79 (discount rate 8.6%). Maintain Underperform as we expect competition in the industrial space to intensify in 2010. Possible re-rating catalysts may come from the acquisition of significantly accretive assets.
• Full-year distributable income of S$117.9m and DPU of 6.02cts exceeded Street and our expectations, though EBITDA was below our expectations (93% of FY09 forecast). This was attributed to the inclusion of an exceptional S$2.5m consideration from Prima Limited for an extension of its lease along Keppel Road in distributable income. Full-year net property income of S$180.8m was up 12% yoy, mainly on contributions from 11 acquisitions completed in 2008. Only one property (7 Penjuru Close) was acquired in 2009. Portfolio occupancy improved to 98.1% from 97.1% in the last quarter.
• Asset revaluation. MLT’s 82 properties were valued at S$2.9bn as at Dec 09. This was down a marginal S$16.5m, or 0.6% of its asset size. Its book value dipped to S$0.85/unit from S$0.89/unit in Dec 09.
• Expect acquisitions and intensifying competition in 2010. Management is ready to acquire this year after a hiatus in 2008. Last November, we estimated S$200m worth of acquisitions for 2009-10. Only S$43m was used to acquire 7 Penjuru Close. We bring forward the remainder S$157m to FY10, and now assume a 60:40 debt to equity ratio. We also lower our cost-of-debt assumption to 3% (from 3.5%) given improved credit conditions and MLT’s unencumbered balance sheet. Our DPU estimates fall by 3-4% for FY10-11. Both the business and credit environment has improved for the logistics and warehousing sector, auguring well for MLT’s properties. However, the same should also attract more competition from listed and unlisted property funds and trusts. We believe acquiring overseas assets could be more accretive than acquiring in Singapore.
SREITs – OCBC
Our wish list for 2010
2009 has been an interesting year for the S-REIT sector, with the Great Financial Crisis exposing weaknesses in a structure many thought of as invulnerable. Keeping both the S-REITs’ strengths and weaknesses in mind, here are a few changes we would like to see in 2010…
(1) Increased alignment of incentives. Most REIT managers are currently earning fees based on asset value and on net property income (NPI). Historically, S-REITs have relied heavily on acquisitions to grow both NPI and portfolio size, especially with the added kicker of acquisition fees. Depending on the pricing and financing structure, these two metrics can be increased with no net benefit (or even a cost) to unitholders. A recent RiskMetrics report1 suggests pegging a substantial part of manager fees to total shareholder return. No fee structure is perfect but we feel this issue warrants further attention and discussion.
(2) More transparency of relationship with sponsor. The S-REIT sector has traditionally had a bias towards developersponsored REITs. These REITs are inextricably tied to their sponsors on several levels including property management, REIT management and through acquisition pipelines. In the current de-leveraging environment, we believe several sponsors will sell their assets to their REITs. Pipelines can be a competitive advantage – ultimately an investor may be buying access to quality assets. But pricing and strategic benefit to the REIT is always a concern. We would like to see increased transparency of the acquisition decision-making process that goes beyond a comparison of the acquisition cost versus the independent valuation of the target property.
(3) Renewed focus on value accretion. We expect REITs to return to their growth-via-acquisition strategy. We note that historically the market has focused primarily on yield accretion, which may be more a function of the amount of leverage used to make the purchase than anything else. Third-party or pipeline-driven, we would like to see more attention on the value-add of the proposed acquisition. The market needs to ask harder questions including: Why is the REIT making this purchase? Does this purchase enhance the overall portfolio? What are the strategic considerations behind this decision? Is this a good buy on an un-leveraged basis?
Valuation. Our key ratings drivers in 2010 are 1) earnings trends; 2) leverage and outstanding issues; 3) manager commitment to protecting and creating value; and 4) relative valuations. We maintain our NEUTRAL rating on the REIT sector. Mapletree Logistics Trust [BUY, FV: S$0.78] and Ascott Residence Trust [BUY, FV: S$1.25] are our top picks for the sector.
MapleTree – BT
Mapletree buys $68m warehouse
The warehouse in Japan has a property yield of 7.26%
MAPLETREE Logistics Trust acquired its ninth piece of property – a warehouse – in Japan for about $68 million, announced its managers, Mapletree Logistics Trust Management Ltd (MLTM), yesterday.
The warehouse has a property yield of 7.26 per cent, higher than the implied property yield of its existing Japan portfolio of 4.5 per cent.
Based on the actual nine-month financial results for 2009, the proforma financial effect of the acquisition on the annualised distribution per unit is an additional 0.103 cents or 1.75 per cent, assuming a unit price of 69 cents.
The warehouse, which is located in Chiba on freehold land, is leased to a major Japanese multinational corporation.
‘We are very pleased with the acquisition of this property, which is located in a popular logistics hub for in-land distribution for the Kanto region,’ said Chua Tiow Chye, chief executive officer of MLTM.
‘We continue to find the Japan logistics market attractive due to its breadth and depth which is currently unmatched in Asia. We will continue to expand our portfolio in Japan by selectively acquiring yield-accretive logistics assets of good quality and location.’
The acquisition, which will be fully funded by debt, is expected to be completed in Q1 2010, and brings Mapletree’s Japan portfolio to about 43 billion yen in value.
In November, the trust launched a private placement of 115 million new units to raise up to $82 million in order to create debt headroom for the funding of the acquisition.
The private placement had been launched in order to finance two local acquisitions – a six-storey warehouse in the west of Singapore and a multi-storey warehouse in the east of Singapore, for about $43 million and $34 million, respectively.
These acquisitions are expected to be completed by the end of this month.
Mapletree’s latest logistics play in Japan comes on the back of an announcement by its sponsor , Mapletree Investments Pte Ltd, that it had signed a memorandum of understanding on a joint venture with Itochu Corporation to develop logistics facilities in Japan, earlier this month.