Category: MLT
MapleTree – BT
Moody’s Investors Service on Monday affirmed MapletreeLog’s Baa2 rating and changed the outlook to stable from negative.
‘The affirmation of Mapletree’s Baa2 rating reflects a significant improvement in the group’s leverage and liquidity position following a rights offering that is largely supported by its sponsor, MapletreeInvestments Pte Ltd,’ says Kathleen Lee, a Moody’s VP/Senior Analyst.
She added ‘such that its financial metrics — Debt/EBITDA of around 8x and EBITDA/Interest around 3.5x — are more appropriate for its Baa2 rating’.
‘In addition, MapletreeLog has successfully alleviated material refinancing risk with the use of its rights proceeds from August partly paying down short term debt and committed acquisition payments as well as extending some short term debt to medium term bank lines’ says Ms Lee.
Mapletree Logistics Trusts was the first Singapore-based Asia-focused logistics REIT. It was listed on the Singapore Stock Exchange in July, 2005, and its portfolio has since increased from 15 to 79 properties by 30 September 2008, and valued at approximately S$2.67 billion. Including its recently acquired assets, MapletreeLog has a fairly well diversified portfolio with 54% of its investment assets in Singapore, followed by Hong Kong (24%), Japan (12%), Malaysia (5%), China (4%) and South Korea (1%).
Going forward, Moody’s expects MapletreeLog to observe financial metrics similar to those they now have and to be relatively measured in looking at new acquisitions. Even if they were to acquire new assets the company would look to have committed funding before committing to new asset acquisitions and maintain a well-laddered debt maturity profile.
The stable rating outlook reflects Moody’s expectation that the expected weakness in the industrial property market over the next 12-18 months is manageable within the rating considering MapletreeLog’s asset quality and its improved financial metrics.
On the other hand, Moody’s does not see an upside rating potential in the next 12-18 months given the expected weakness in the operatingenvironment and property fundamentals.
On the other hand, Baa2 rating could be downgraded if MapletreeLog’sfinancial performance weakens due to a material weakening in the industrial operating environment beyond that expected.
Financial indicators that could pressure the rating include: fixed interest coverage dropping below 2-3x or Debt/EBITDA coverage ratio increasing above 8x — 10x. In addition negative rating pressure could emerge if the company does not continue to proactively extend its debt maturities to avoid any short term pressures in this context.
The last rating action was on 10 April, 2008 when the rating of MapletreeLog was confirmed at Baa2 with outlook negative.
MLT – CIMB
Ready for rough times
• Upgrade to Outperform from Neutral. MLT’s rights issue earlier this year both addressed refinancing concerns and brought down its asset leverage to a healthy 37% from 56%. We expect new demand for industrial space to ease in tandem with an expected economic downturn. Nonetheless, MLT’s long weighted average lease to expiry of five years should provide visible income streams over the medium term.
• Unchanged target price of S$0.60 (discount rate 9.6%). At our target price, MLT has potential price upside of 42.8%, vs. the potential 15% upside for the STI. We upgrade MLT to Outperform from Neutral based on valuation. We believe that MLT’s rental resilience, healthy leverage and management’s conservatism after the rights issue will yield stable distribution to unitholders despite macroeconomic negatives. Current P/BV of 0.49x and forward yields of 13.2% are in line with SREIT averages. At these levels, MLT appears significantly cheaper than its closest peer A-REIT, whose P/BV is 0.94x with forward yields of 8.8%.
REITs – CIMB
Ripe for the picking
• Looking cheaper than ever. YTD, the Singapore REIT index has fallen 56% (vs. the STI’s 48% decline), driven by fears of REITs’ inability to secure refinancing, and falling rents and occupancy in an economic downturn. Average P/BV for the S-REIT sector has fallen to 0.51 while average yields have doubled to 14% in the last two months.
• REITs with strong credit and risk metrics get gold. Despite the credit crunch, there are still REITs that exhibit strong credit and diversified risk metrics. The presence of strong sponsors and government-linked sponsors is advantageous at this juncture. To these, banks are not only willing to lend but lend on more favourable terms. Some REITs have even managed to move away from borrowings that require pledges on their assets or rental income, thereby retaining financial flexibility.
• Asset devaluation risks small, financing ability not impaired yet. Most of the REITS are still within safe gearing levels. This implies a low risk of breaching impairment levels and could mean debt funding would still be available to them.
• Look for efficiency. In the midst of the credit crunch, acquisitions and asset enhancements requiring significant outlay would be difficult, particularly in 2009. More attention should be focused on the operational efficiency of the REIT manager in pushing every dollar of rent from the top down to the distribution level. CDLHT stands out as an efficient REIT manager with a remarkably close match between its revenue growth (222%) and DPU growth (211%), in our comparison.
• Overweight on S-REITs; top picks are PLife and CCT. With the strong selldown of REITs, we see an opportune time to accumulate positions. We maintain our Outperform ratings on A-REIT, CIT, FCT and PLIfe. We upgrade CCT and MLT to Outperform from Underperform and Neutral respectively. We maintain our Underperform on ART but downgrade CDLHT to Underperform from Neutral. While PLife remains our top pick for its limited earnings downside and strong financial flexibility, CCT emerges as a deep-value pick with the lowest P/BV of 0.28x among REITs under our coverage, and below the S-REIT average of 0.5x. We believe that all negatives have been priced in and forward yields at 12.2% (CY09) look attractive.
Link – Table
MapleTree – DBS
Resilient Earnings
Story: Gross revenues and NPI grew 19.6% and 18.7% yoy to S$46.0m and 40.2m respectively. Main drivers were contributions from an enlarged portfolio; 18 properties were bought through the course of the year. Distribution income also increased 33% to $25.4m, translating to a DPU of 1.84cts. DPU, however was 9.8% down sequentially due to diluted from the rights issue completed in Aug’08. YTD, DPU of 5.78 cts was 85% of our projected FY08 estimate. The outperformance came from MLT keeping interest costs low at an average effective rate of 2.7% and interest savings from the repayment of loans.
Point: Faced with slowing global trade moving forward, the focus of MLT will be (i) yield optimization from its existing portfolio and (ii) tenant retention. While we expect slowing economic activity to affect demand for logistics space, we view that any impact from falling occupancies to be mitigated as 61% of its leases are locked in longterm basis with incorporated stepped up rentals clauses. Going forward, we adjust our occupancy assumptions slightly downwards to 95% in FY09-10. With lower occupancies and no further acquisitions assumptions, our DPU estimate over FY09 is adjusted down by 8.9% to 5.4 cts.
Relevance: We have lowered our TP to S$0.57 from S$1.04 previously due to the exclusion of any acquisition assumptions. We continue to like MLT for stable income stream with potential for upside when it executes on its acquisition pipeline going forward. At current price level, MLT offers an attractive fully diluted FY09-10 DPU yield of c.11% and 18% upside to our target price. Maintain BUY
MapleTree – CIMB
Treading with care
• In line. 3Q08 DPU of 1.84cts was in line with Street and our expectations, growing 6.7% yoy, only because of a lower-than-expected number of units issued from a recent rights issue. YTD distributable profit of S$69.1m was below our expectation, at only 66% of our full-year forecast. However, this could be attributed to the lagged effect of contributions from announced acquisitions in the year. Gross revenue of S$46.0m was up 19.6% yoy, on contributions from acquisitions completed earlier.
• Completion of acquisition properties. As at 30 Sep 08, the acquisition of Northwest Logistics Park (Phases 1 & 2) and Kashiwa Centre was completed, leaving only two properties for completion in 4Q08. These are the G-force property in Malaysia and ISH Waigaoqiao property in China worth a total of S$45.8m.
• Refinancing worries over for now. MLT has refinanced about S$500m of its debt with proceeds from its rights issue. Total debt has been reduced from S$1,461m to S$1,023m with asset leverage falling to a healthy 36.9% from 56.3%. Debt maturity will not exceed 12% of its total debt over the next three years (Figure 1). MLT has also S$360m of committed working capital lines and term loans received at hand.
• Stable portfolio to provide rental resilience. As at 30 Sep 08, 64.1% of its leases had long tenures exceeding three years, and 35.9% had leases of three years or less. This combination should provide a broad and resilient rental base which is positive in the uncertain economic climate today.
• Changes in assumptions. We remove our earlier assumptions of new acquisitions of S$300m each for 2009-10 in view of the global financial uncertainties. We also remove the discount given for a share overhang from the rights issue. Additionally, we revise our assumption of 70% contribution from new acquisitions to 40% to account for the longer time lag between the announcement and actual contribution.
• Maintain Neutral; lower target price of S$0.60 (from S$0.85). After changes in our assumptions, our DPU estimates for FY08-10 decrease by 0.6-11.1%. Our DDM-derived target price (discount 9.6%) accordingly falls to S$0.60 from S$0.85. We believe that MLT’s rental resilience, healthy leverage and management’s conservatism after the rights issue will yield stable distribution to unitholders despite macroeconomic negatives. Maintain Neutral.