MapletreeLog slashes leverage ratio to 36.9%

MAPLETREE Logistics Trust (MapletreeLog) cut its leverage ratio to 36.9 per cent in the third quarter of this year – down significantly from 56.3 per cent in Q2.

At Sept 30, its debt was down about 30 per cent – from $1.461 billion in the previous quarter – to $1.023 billion, with the help of a rights issue in July.

However, this had a dilution effect on its distribution per unit (DPU).

For Q3, MapletreeLog reported DPU of 1.84 cents, down 9.8 per cent quarter on quarter but up 7 per cent year on year.

Distributable income of $25.4 million was 33.1 per cent higher than a year earlier, while net property income was up 18.7 per cent to $40.2 million.

At the close of the rights issue offer period, only 59.9 per cent of valid acceptances were received. MapletreeLog’s sponsor Mapletree Investments took up the balance of the units and applied for excess rights, lifting the final demand tally to 130.7 per cent.

The rights issue, which was completed on Aug 22, saw 831.1 million new units issued, increasing the number of outstanding units from 1.108 billion to 1.939 billion. MapletreeLog raised $606.7 million from the issue – and used a significant portion to repay loans.

Of its current debt of $1.023 billion, $114 million is due to mature within 12 months. ‘We are comfortable with this,’ said Chua Tiow Chye, the chief executive of Reit manager Mapletree Logistics Trust Management.

Mr Chua also said the trust has committed bank lines and firm proposals that are twice the amount, as well as other uncommitted lines.

‘We are well positioned to weather the current challenging environment as there is no funding or refinancing risk,’ he said.

Weathering the ‘challenging environment’ means MapletreeLog will get off the acquisition trail for a while, especially as it would like to maintain a leverage ratio of 40-45 per cent.

It has announced two acquisitions with a book value of $46 million that are pending completion.

Mr Chua said that looking forward, growth will be at a more moderate pace of 3 per cent. ‘If we do acquisitions, it will be based on debt and equity,’ he said.

MapletreeLog’s less aggressive stance will also extend to its tenants. ‘With the downturn, we need to be more circumspect on how much we can push tenants on rental reversion,’ Mr Chua said, adding that the trust will look instead at ‘rental retention’.

Expenses increased 26.4 per cent year on year to $5.8 million in Q3, due to higher property taxes and land rents.

Still, rental reversion was about 30 per cent higher. The trust’s portfolio of 79 buildings, valued at $2.485 billion, also had an occupancy rate of 99 per cent.

Dilution From 3-for-4 Rights Issue

Completed 3-for-4 rights issue. Mapletree Logistics Trust (MLT) has completed a 3-for-4 rights issue at a price of S$0.73. It has raised S$606.7m through the issuance of 831.1m new units. Sponsor Mapletree Investments has given an irrevocable undertaking to take up its entire allotment and subscribe for all excess rights units. Mapletree Investment has increased its stake in MLT from 30.2% to 46.9% after acquiring 325m excess rights units. MLT will utilise proceeds from the rights issue to acquire 13 properties in Singapore (6), Malaysia (2), China (3), Japan (1) and South Korea (1) worth S$357.1m. Assuming the acquisition of these targetted properties is already completed, DPU for 1H08 will decrease 25.6% to 2.93 cents. NAV/share will be reduced from S$0.94 to S$0.84 and gearing from 56.3% to 36.8%.

Collaborating with Mapletree Investments on regional expansion. MLT has identified Singapore, Hong Kong and Japan as priority markets. It plans to have 70-75% of its portfolio in developed markets and the remaining 25-30% in emerging markets. Mapletree Investments has invested S$846m in 10 development projects, including logistics parks, build-to-suit and ready-built logistics facilities in China (six properties), Vietnam (three) and Malaysia (one). These assets will be offered to MLT under a right of first refusal valid till 2010. MLT plans to grow its asset base to S$5b by 2010.

Properties in China, Hong Kong, South Korea and Malaysia account for 33% of net property income. The risk-free rates in these markets are much higher compared with that of Singapore. There is also a potential share overhang after the rights issue.

Completed rights issue…

MLT has completed a 3-for-4 rights issue at issue price of S$0.73. Sponsor Mapletree Investments has given an irrevocable undertaking to take up its entire allotment of rights units and will subscribe for all excess rights units not taken up by other unitholders. The rights issue involves issue of 831.1m new units and has raised S$606.7m. Mapletree Investments has increased its stake in MLT from 30.2% to 46.9% after taking up 325m excess rights units.

Impact from dilution. MLT plans to utilise proceeds from the rights issue to acquire 13 properties in Singapore (6), Malaysia (2), China (3), Japan (1) and South Korea (1) worth S$357.1m. Assuming the acquisition of these targeted properties is already completed, DPU for 1H08 will decrease by 25.6% to 2.93 cents. NAV/share at Jun 08 will be reduced from S$0.94 to S$0.84 and gearing from 56.3% to 36.8%.

Prefer A-REIT. Based on pro forma DPU of 2.93 cents, MLT is trading at annualised distribution yield of 8.1%. We prefer A-REIT due to a diversified portfolio and bluechip tenant base. AREIT provides FY09 distribution yield of 6.9%.

MapletreeLog’s sponsor backs rights issue

It will apply for excess rights units in case any rights units aren’t taken up by trust’s unitholders

AMID market concerns about a potential share overhang, Mapletree Investments Pte Ltd (Mapletree) – the sponsor and parent of Mapletree Logistics Trust (MapletreeLog) – yesterday declared its full backing for the trust’s rights issue.

In a move to take up all rights units, if any, not taken up by unitholders of MapletreeLog, Mapletree said it has decided to apply for excess rights units.

‘Mapletree will rank last in priority after excess rights applications from all other unitholders are allocated,’ said the sponsor.

Mapletree had last month already undertaken to subscribe in full for its 30.16 per cent rights entitlement.

The ‘share overhang’ worry in the market is that in the event of the rights issue not being fully taken up, the excess rights units could end up in the hands of issue underwriters who, on disposing of the units, would cause the unit price to fall.

Mapletree’s move could address this concern because of its long-term investment approach.

The issue of the 831.1 million rights units at 73 cents each will reduce the trust’s gearing from 56.3 per cent currently to 38 per cent – addressing another major concern in the market about MapletreeLog.

Mapletree CEO Hiew Yoon Khong said in yesterday’s statement: ‘As the sponsor and natural investor in MapletreeLog, we have every confidence that the manager of MapletreeLog will continue to enhance the distribution per unit for unitholders.’

A Mapletree spokeswoman said yesterday: ‘We noted the concerns that MapletreeLog’s price was trading for a short period of time below the issue price and the concern of a price overhang. We believe the rights price of 73 cents is attractive and we are fully confident that once the rights issue is completed, MapletreeLog will have a more robust balance sheet and greater financial flexibility.’

The counter closed unchanged at 75 cents yesterday.

MapletreeLog unitholders will be offered three rights units for every four existing units held.

The trust will make an announcement next week on when subscription for the rights units opens.

Last Friday, MapletreeLog’s unitholders approved the rights issue and independent unitholders (excluding Mapletree) gave Mapletree the option to pick up excess rights units without being obliged to make a mandatory general offer for the trust.

The underwriters for the rights issue are DBS Bank, Goldman Sachs (Singapore), Macquarie Capital Securities (Singapore) and UBS Investment Bank.

Mapletree’s Mr Hiew stressed: ‘MapletreeLog is an integral component of the Mapletree group’s funds management platform . . . At the rights issue price of 73 cents, we believe this is an excellent investment opportunity. Our decision to take up all unsubscribed rights units is also a demonstration of our strong support and complete confidence in the sustained growth of MapletreeLog.’

Sterling Results

Story: MLT posted a set of sterling 2Q08 results, with topline and NPI rising c28% yoy and c3% sequentially to $43.8m and $38.3m respectively, in line with expectations. Distributable income rose a better 7.6% qoq to $22.6m (DPU: 2.04cts), helped by lower interest expense as effective borrowing cost dipped to 2.7% from 2.9% a quarter ago. The better performance was primarily due to contributions from 18 additional properties while organic rental improvement from assets in HK and Singapore also shored up bottomline.

Point: Going forward, MLT’s regional yield plus growth strategy is still intact. While acquisition pace may moderate due to a quieter property market, this is likely offset by higher total return benchmarks set for new acquisitions. Positive rental reversions from its HK and Singapore assets and asset enhancement initiatives should also boost bottomline. Shareholders approved a 3-for-4 rights issue at $0.73 apiece to raise $607m to partially fund new purchases and pare down debt. This will lower gearing to 38%, giving it room to tap new sponsor and third party purchases. Post-rights, it has $330-$640m of debt headroom for new buys, assuming a debt/asset ratio of 45-50%.

Relevance: We remain positive on MLT’s prospects in the medium term with a strengthened balance sheet, which gives it room to tap new opportunities for growth. While short-term share price performance may be dampened by DPU dilution in 2H08 and potential overhang from the new unit issue, we believe this has been largely reflected in the share price. The stock is currently trading at 8.1-9.0% yield based on post-rights FY08 and FY09 DPU of 6.7cts and 6cts. Our adjusted price target of $1.04, assumes $550m of new acquisitions in FY09.