Category: MLT
MapleTree – DBS
Beating expectations
• 2Q09 results above street expectations
• Robust occupancy of 98%
• Offers growth on top of stability
• Maintain BUY, TP S$0.70 based on DCF, offering 26% total return
Results slightly above. MLT reported a good set of 2Q09 results, beating market expectations. 2Q09 distributable income came in 26% higher at S$28.6m (DPU of 1.48 Scts), underpinned by 19% growth in topline and net property income to S$51.9m and S$45.7m respectively. Performance on a sequential basis remained stable.
Occupancy remains high at 99%. The better performance came primarily from MLT keeping retentions high at 80%, resulting in high occupancy of 98% vs our estimate of 95%. With two-thirds of expiring revenue secured, come 2H09 forward renewal activities will only account for c7% of total revenue. We reduce our vacancy assumptions to c2% resulting in upward DPU adjustment of c. 5.8-6.6% in FY09-
10F.
Pipeline in waiting – Up to S$300m of assets. Management shared that sponsor’s pipeline lies in waiting, with possible c. S$300m worth of assets to be injected into the trust over the medium term. However, any injection will be financed through a combination of debt and equity and have to be accretive to unitholders. Gearing is targeted to remain at current level of 38%.
Maintain BUY, TP S$0.70. Current price at 0.7x P/BV is in line to its smaller industrial peers is attractive. With a strong sponsor support and a S$3.0bn- unencumbered portfolio, MLT offers a potential for growth, on top of a stable FY09F-10F prospective yield of 10%. Maintain BUY, our TP is raised to S$0.70 premised on increased earnings and a slight lowering in equity risk premium (-50bps to 7.0% WACC).
Industrial REITs – Daiwa
2Q09 preview – some minor deterioration expected
What has changed?
• The Singapore-listed real-estate investment trusts (S-REITs) in the industrial space are due to be among the first to announce their 2Q09 results, from 17 July.
Impact
• We expect minor (0.6-2.6%) quarter-on-quarter declines in net-property income (NPI) arising from a slight uptrend in overall vacancy rates and a more challenging leasing environment (for renewals).
• We expect year-on-year declines in their distribution-per-unit (DPU) due to equity fundraising for Ascendas REIT (AREIT) and Mapletree Logistics Trust (MLT), and higher borrowing costs for Cambridge Industrial Trust (Cambridge).
Valuation
• We believe the implied trading yields (implied cap rates) of 8.1% for MLT and 10.9% for Cambridge (based on our estimates) are attractive relative to the cap rate of 7% for Singapore industrial properties. From this perspective, AREIT is unattractive, at an implied trading yield (based on our estimates) of about 6.6%.
Catalysts and action
• We maintain our Negative rating for the industrial segment, and our 4 (Underperform) rating for AREIT, which we believe continues to trade at an excessive premium (at a price to NAV of 0.94x) to the sector and its industrial peers.
• We believe the biggest risk to this segment is the relentless decline in asset values, down 7-11.3% QoQ for 2Q09 and in line with similar quarter-on-quarter falls for industrial rents, according to Jones Lang LaSalle.
• We maintain our 3 (Hold) rating for MLT as we believe it offers reasonable value, but little else now that its acquisition-growth model has stalled.
• Our top pick in this segment is Cambridge, 1 (Buy) rating, for its attractive valuations and, in our opinion, highly defensive lease-renewal profile. We believe a positive price trigger for Cambridge would be a well-timed asset disposal that would help reduce gearing.
MLT – CIMB
Fully valued
• Downgrade to Neutral from Outperform. The outlook for the manufacturing and logistics industries remains weak and we expect new demand for logistics space to ease further. Nonetheless, MLT’s long weighted average lease to expiry of five years and geographical diversification should ensure visible income over the medium term. Occupancy of 98% as at Mar 09 remained materially higher than the islandwide warehouse occupancy rate of 92.8%.
• Lacking catalysts in the short term. MLT’s strategy of growth via acquisitions looks set to take a backseat in the short term, while upward rental reversions are limited by weak demand.
• DDM-derived target price raised to S$0.62 (from S$0.60). We maintain our estimates but use a lower discount rate of 9.4% (from 9.6%) based on a lower riskfree rate of 4.8% applied across our REIT universe. P/BV for MLT has risen to 0.6x, in line with the sector average. At this level, we believe MLT is fully valued, and downgrade it to Neutral.