Category: MLT
MLT – OCBC
A flat, but better than expected, 1Q09
Fairly flat QoQ. Mapletree Logistics Trust (MLT) posted S$53.3m in 1Q09 revenue, up 24.9% YoY, thanks to acquisitions. Revenue was fairly flat on a sequential basis, up only 1.7% QoQ. NPI margin stood at 86.7% for the quarter, slipping from the 87.6% margin achieved a year ago but slightly better than the 86.1% recorded in 4Q08. Distributable income rose 0.7% QoQ and 36.1% YoY to S$28.6m. MLT will pay out 1.47 S cents/unit, down 22.6% YoY (because of an enlarged units base post last year’s rights issue) and up 0.7% QoQ. This translates to an annualized yield of 13.1%. The manager reaffirmed its commitment to pay out 100% of distributable income.
But better than expected. 1Q results outperformed our expectations by 5-8% due to our conservative occupancy assumptions for FY09. Our estimates incorporate a fairly bearish 90% portfolio-wide occupancy assumption over FY09-10. MLT’s overall occupancy as at 31st March is 98.5%, versus 99.6% as at 31 December. Some pockets of weakness have emerged: Hong Kong occupancy has fallen from 98.2% as at December to 95.8% at March, while China occupancy has fallen from 99.2% to 91.7%. Note that the China fall is because of problems with one tenant (contributes less than 1% of total revenue). At the same time, other markets like South Korea, Japan and Malaysia are holding at 100% occupancy. This variety in performance explains the small size of the overall dip, and validates the portfolio’s advantages of geographical diversification and balance between multi-tenanted and sale-and-leaseback properties.
Refinancing underway. MLT is geared at about 38.3% debt-to-assets. During the quarter, MLT raised some S$105m in new loans to refinance existing debt. As of 31 March, about S$151m in loans will mature this year, and the manager announced significant progress in arranging refinancing. While a US$20m term loan is still being negotiated, MLT has enough committed lines and cash on hand to refinance all 2009 loans.
Valuation achieved. We believe our investment thesis still stands: occupancy will be the key performance driver in the industrial space; but MLT’s diversified and high quality portfolio will allow it to deliver reasonably stable income to unitholders over the next two years. MLT has had a good run, up 15.4% since our re-initiation in February. However, we have not seen enough corresponding positive signals for the industrial market. As our fair value estimate of S$0.45 has been achieved, we are downgrading the stock to a HOLD.
MLT – DBS
Attractive valuations, stable yields
At a glance
• Results were in line with our estimates, above consensus
• Portfolio occupancy remained relatively robust
• Minimal refinancing risk
• Maintain BUY, TP $0.56 based on DCF
Comment on Results
In line with expectations. Gross revenues and net property income grew by 25% to S$53m and S$46m respectively as a result of a larger portfolio. Distributable income improved by 36% to S$28.6m, translating to a DPU of 1.47 Scts. When compared against 4Q08 performance, incomes remained relatively stable.
Portfolio occupancy remained high at 98.5%. Key operating markets remained relatively stable. Slight decline from 4Q08 (99.6%) as a result of MLT taking back a property in China. However, impact on earnings is expected to be within 1% of income and within our projections of a 5% increase in vacancy levels by end FY09. We believe that upside surprise will derive from the trust managing to retain current occupancies for the rest of FY09. As of 1Q09, in excess of 80% of FY08 revenues have been secured till date.
Minimal refinancing risk. MLT has secured sufficient resources to meet its 2009 debt obligations. We remain confident on its financial position given (i) an unsecured loan portfolio leading to no LTV pressures, (ii) ample interest cover expected to remain above 4.0x, and (iii) strong parentage & relationships with bankers.
Recommendation
Attractive valuations. We believe that MLT, trading at 0.5x P/BV, coupled with a prospective forward DPU yield of 12% is attractive. We maintain our BUY call on MLT, TP adjusted to S$0.56, on the back of lower equity risk premium assumptions.
MLT – CIMB
Steady start to the year
• 1Q09 results in line. Distribution income of S$28.6m and DPU of 1.47cts are in line with Street and our expectations (27% of full-year forecast). Yoy DPU growth was – 22.6% due to additional units from a rights issue in Aug 08, while qoq growth was marginal at 0.7%. Growth in net property income of S$46.2m was strong yoy (+24%), but significantly slower qoq (+2.4%) with a reduced number of new acquisitions to boost the topline.
• Occupancy down 1.6% pts; renewals on track. Occupancy level in MLT’s portfolio fell 1.6% to 98% in Mar 09. Nonetheless, this was still materially higher than islandwide warehouse occupancy of 92.8%. Management reported that over 35% of leases (as a percentage of gross revenue) expiring in 2009 have been renewed. This represents 7% of overall portfolio revenue. Average reversion rates are flat compared with prevailing rates. Tenant arrears remained small at 1% of annualised gross revenue.
• Short-term debt manageable. MLT has S$151m or 12.5% of total debt due in 2009. Management assures that it has sufficient credit lines to refinance this debt. These include S$185m from: 1) a S$46m 3-year term loan completed on 31 Mar 09; 2) S$99m of secured revolving credit facilities; and 3) S$40m of cash earmarked for debt refinancing. Management is also documenting at least another S$80m of debt facilities which will include committed revolving credit facilities and term loans. Average weighted borrowing cost remains low at 2.9% with no assets secured. Asset leverage for the quarter was 38.3%, excluding S$40m of borrowings earmarked for refinancing. This is in line with MAS’s clarification in Jan 09 that debt raised for refinancing purposes earlier than maturity would not need to be counted in the calculation of REITs’ aggregate leverage limit.
• Maintain Outperform and target price of S$0.60. Our DDM-derived target price (discount 9.6%) stays at S$0.60, with no changes to our estimates. Although the pressure to maintain occupancy and rents remains, we are encouraged by its relatively high tenant retention rate of 80% and success in securing refinancing. We believe MLT will be able attain our forecast distribution for FY09.
Industrial REITs – DBS
Property Tour Highlights
We paid a visit to Ascendas REIT (A-REIT) and Mapletree Logistics Trust (MLT) properties located in Singapore’s major industrial and business parks. We went away pleased with the respective landlords ‘hands on’ management of the properties and having a good grasp of tenants’ requests and needs. Maintain BUY for AREIT (S$1.56) and MLT (S$0.44), which are trading at FY10- 11DPU yields of c. 9% and 14% respectively.
A tour of selected MLT and AREIT properties. We visited a total of 8 selected industrial properties in Ascendas REIT (A-REIT) and Mapletree Logistics Trust (MLT) portfolio located in Singapore’s major industrial and business parks. These properties ranged from business parks, hi-tech industrial buildings to logistics & warehouses (L%W).
Well maintained with stable occupancies. We are pleased to say that the properties we visited are well maintained and managed with on-site representatives to cater to tenants’ needs and requests. As such, occupancy levels at A-REIT and MLT’s portfolio have remained stable at around 99% over the past year, with strong retention rates of over 80% in FY08. Looking ahead, strong rapport with tenants and proactive leasing strategies established by MLT and A-REIT will likely sway tenants’ decisions toward continuing staying put at their properties.
Asking rentals are easing but within expectations. In our discussions with the various asset managers, we understand that asking rents have eased generally. For business parks space and Hi-tech industrial space, asking rents have dipped slightly, since the peak, to S$2.80 – S$3.50 psf pm. However, this is still above their respective average passing rents of c. S$2.55 psf pm and S$2.09 psf pm (as of reported in 3Q09). For L&W properties, we do not expect rates to fall significantly as it has remained relatively stable over the years.
TP for A-REIT raised to S$1.56, Maintain BUY on MLT, TP S$0.44. We continue to like an exposure to industrial space given its longer lease profile, will ensure more resilient earnings moving forward. Both A-REIT and MLT has 40% and 50% of its earnings locked in through long term sales and leaseback contracts. We roll forward our valuations for A-REIT to FY10, resulting in our adjusted target price of S$1.56.
Industrial REITs – CIMB
Relative resilience
• Industrial P/BV at 0.37x; appears resilient. The industrial sector looks attractive at an average P/BV of 0.37x, close to the REIT sector average of 0.34x. Resilience is underpinned by a historical time lag between changes in leading industrial indicators (including NODX, sea and air cargo throughput) and occupancy levels that could exceed 12 months.
• Expect further support from government for industrial users. The government traditionally supports industrial users by reducing industrial land and building rents, and dishing out rental and property tax rebates. We anticipate this assistance to continue as the manufacturing sector remains the single largest driver of Singapore’s GDP. We expect industrial REITs to benefit three ways from this: 1) reduced land rent payments for industrial REITs; 2) increased sustainability for REIT tenants paying land rent directly to JTC; and 3) increased sustainability of the other industrial property users, on which industrial REITs’ tenants are inter-dependent.
• Low tenant default risks. Within the industrial REIT space, we prefer REITs with low tenant default risks. These would be represented by large and diversified asset and tenant bases, limited concentration on single tenants and significant MNC representation.
• Good capital management. All three industrial REITs are comfortably geared at below 40% with no major refinancing needs over the next two years. Cash calls for MLT and CREIT are not likely in the current year. In terms of capital management, all three industrial REITs look well-positioned to weather the storm
• Maintain Overweight; A-REIT our top pick. Among industrial REITs, we favour AREIT for its least tenant default risk, attributable to its large and diversified asset base, and large and quality tenant base. We also like MLT for its geographical diversification which moderates its risk of asset concentration. CREIT is our least preferred stock for its smaller asset base and higher tenant-concentration risks.