MapletreeLog unveils $606.7m rights issue

MAPLETREE Logistics Trust (MapletreeLog), which earlier this year deferred a proposed rights issue because of global capital market volatility, yesterday unveiled a proposed 3-for-4 rights issue, at 73 cents a unit, to raise about $606.73 million. The proposed issue, which has received in-principle approval from the Singapore Exchange, is subject to unitholders’ approval at an extraordinary general meeting to be convened. The issue is expected to be completed during the third quarter of 2008.

Equity fund raising required but not imminent

Mapletree Logistics Trust (MLT) is an Asia-focused logistics REIT investing in a diversified portfolio of income-producing logistics real estate. It has a portfolio of 72 assets in Singapore, Hong Kong, Japan, Malaysia, China and South Korea valued at S$2.4b at Mar 08. Sponsor Mapletree Investments, a wholly owned subsidiary of Temasek Holdings, has a 30.2% stake in MLT. MLT was assigned Baa2 corporate rating with negative outlook by Moody’s Investors Service.

Continuing to expand via acquisition. MLT has announced acquisitions of eight properties in Singapore (30 Boon Lay, 22A Benoi Road, 3A Jalan Terusan and 76 Pioneer Road), China (ISH WaiGaoQiao and Northwest Logistics Park), Malaysia (G-Force) and Japan (Kashiwa Centre) valued at S$291.4m pending completion at Mar 08. These acquisitions will expand its portfolio by 12% to S$2.7b. They will be financed by debt and will increase gearing from 56.3% to 60% when completed. This places MLT dangerously close to regulatory limit of 60% for gearing.

Collaborating with Mapletree Investments on regional expansion. Sponsor Mapletree Investments has invested S$846m in 10 development projects in the region, including logistics parks, build-to-suit and ready-built logistics facilities in China (six properties), Vietnam (3) and Malaysia (1). These assets will be offered to MLT under the right of first refusal, which is valid until 2010. MLT has identified Singapore, Hong Kong and Japan as priority markets. It plans to have 70% to 75% of portfolio value in developed markets and the balance 25% to 30% in emerging markets. MLT plans to grow its asset base to S$5b by 2010.

Equity fund raising required but not imminent. MLT has total borrowings of S$1,360.4m and gearing is 56.3% at Mar 08. We believe the preferred mode for equity fund raising is via a rights issue given goal to have gearing reduced to optimal level of 40-45%. However, MLT has flexibility in terms of timing for the fund raising exercise as suitable acquisitions can be warehoused or parked with Mapletree Investments till a more opportune time for the stock market.

MLT has short-term borrowings of S$600m. It has converted S$155m of shortterm borrowings into three-year term loans. Another S$300m of short-term borrowings is in process of being converted to terms pending completion of documentation. This will complete the refinancing of short-term borrowings.

Benefitting from positive rental reversion. MLT maintained almost full occupancy of 99.6% at Mar 08. It renewed leases for 539,712sf of space on average 28.7% higher than preceding rates, with strong rental reversion for Singapore. Management expect average rental reversion of 12% in FY08 with contributions from Singapore, Hong Kong and China. MLT declared DPU of 1.9 cents for 1Q08, representing annualised distribution yield of 8.4%.

Internal boost

Comment on Results

MLT reported strong 1Q08 results. Gross revenue grew 48% y-oy to S$42.6m, while NPI rose 45.5% to S$37.4m. Contributions from 23 properties acquired in the past year and positive rental reversions that were secured at c. 29% above preceding rents had lifted bottomline. Distributable income of S$21m (DPU: 1.9cts) was 6.7% higher y-o-y and c.10% above our and consensus estimates. The main swing factor was interest cost, which the REIT managed keep low at 2.9% due to declining interest rates.

Looking ahead, MLT expects to benefit from (i) optimizing yields through rental reversions for the remaining 124k sqm of NLA between 2Q08 – 4Q08, (ii) additional income from completion of another eight asset acquisitions throughout FY08F for a total consideration of S$291m. However, gearing is high at 54.7%, which leaves only S$329m of debt headroom before it reaches the regulatory limit.

Recommendation

We have raised our FY08F and FY09F DPU to 7.7cts and 7.9cts to reflect a lower effective interest cost, translating to FY08F and FY09F yields of 7.5%and 7.7%, respectively. Maintain BUY on MLT with DCF-backed target price of S$1.51 (previous S$1.42), a 47% upside from current trading levels. However, the stock is likely to be re-rated only when it de-gears its balance sheet.

MapletreeLog distributable income up 37% in Q1

yesterday reported distributable income of $21 million for the first quarter ended March 31, up 37 per cent from the corresponding period last year.

This comes on the back of a 48 per cent jump in gross revenue from the year-ago period to $42.6 million.

The increase in distributable income came as MapletreeLog acquired an additional 23 properties within the past one year. As at March 31, the trust has a portfolio of 72 properties. Eight acquisitions are pending completion, which will raise the trust’s portfolio to 80 properties spread across Singapore, Malaysia, Hong Kong, Japan, China and South Korea, with a book value of more than $2.7 billion.

Unitholders will receive distribution per unit (DPU) of 1.90 cents for Q1 2008, which is 28.4 per cent higher than in the year-ago period.

MapletreeLog’s website shows analysts’ DPU forecasts for 2008, made in January, ranged from 6.70 cents to 8.01 cents.

MapletreeLog also reported an improvement in borrowing costs. Due to a sharp drop in interest rates for major currencies during the quarter, the trust’s weighted average annualised interest rate fell from 3.3 per cent per annum in the Q4 2007 to 2.9 per cent in Q1 2008.

According to Mapletree Logistics Trust Management (MLTM) CEO Chua Tiow Chye, the trust has started the year with a strong performance.

‘We will continue with our yield plus growth strategy but in the current environment, we will remain focused on optimising yield from the existing portfolio while continuing to identify selective acquisition opportunities which we can undertake when the environment normalises,’ Mr Chua said.

MapletreeLog had announced a $500 million rights issue in December last year but deferred the plan in January when the capital market softened.

On this, Mr Chua said: ‘We will continue to monitor and review when it will be conducive to re-visit an equity fund raising.’

MapletreeLog also reported a higher leverage ratio of 54.7 per cent as at March 31, up 1.3 percentage points from Dec 31 last year. This was largely due to borrowings drawn down to fund the trust’s committed acquisitions in Q1 2008.

Respite from debt woes

• 1Q08 results in line on traditionally quiet quarter. Distribution income of S$21.0m was in line with our expectation (23% of our full-year forecast) on a traditionally quiet quarter. However, DPU of 1.9cts came in above Street (27% of full-year) and our estimates (28%) as our assumption of an increased share base from equity fund-raising this year has not yet happened. Gross revenue of S$42.6m was up 48% yoy on contributions from 23 properties acquired in 2007. This was in line with our expectation (24% of full-year) due to a traditionally quieter first quarter; contributions from new acquisitions usually come in in the second half of the year (1Q07: 21% of full-year DPU, 1Q06: 20% of full-year).

• Short-term debt refinanced, cost of debt lowered. Management announced the conversion of S$155m of borrowings due in 2008 into term loans and in-principle approval from banks to convert another S$300m. After conversion, MLT’s shortterm debt of S$476m (35% of total debt of S$1.36bn) should be reduced to 2% of its total debt. Weighted average interest rates also declined from 3.3% p.a. in 4Q07 to 2.9% p.a. in 1Q08, as interest rates for major currencies dropped sharply during the quarter. With this refinancing, Moody’s confirmed MLT’s original Baa2 rating after an earlier review for possible downgrade.

• Sale of non-core properties under consideration. As at 31 Mar 08, MLT’s asset leverage ratio was 54.7%, up slightly from 53.4% a year ago. This was largely due to borrowings drawn down to fund committed acquisitions in 1Q08. Management is considering the sale of some non-core assets to lower its gearing, which is pushing near the regulatory limit of 60%.

• Maintain Outperform and target price of S$1.36. Our DDM-derived target price (discount 6.9%) stays at S$1.36, with no changes in our estimates. Although gearing levels remain high and equity-raising looks difficult in 1H08, we draw confidence from: 1) management’s ability to refinance its significant short-term debt; 2) MLT’s quality asset portfolio; and 3) the positive outlook for the Asian logistics industry. Maintain Outperform.