Mapletree Logistics buys two warehouses for $56m

MAPLETREE Logistics Trust (MapletreeLog) is acquiring two warehouses in Singapore for a total consideration of $56 million.

MapletreeLog, through its trustee, HSBC Institutional Trust Services (Singapore) Ltd, has signed two put and call option agreements to acquire the two warehouses from Cougar Holdings Pte Ltd, a wholly owned subsidiary of Menlo Worldwide LLC, the global logistics unit of New York- listed Con-way Inc.

The two properties, located at Boon Lay Way and Benoi Road, cost $48 million and $8 million, respectively. The properties will be leased back to Menlo’s Cougar Express Logistics for an initial term of 10 years with an option to renew the lease for further consecutive periods of five years each.

The acquisitions will be accretive to MapletreeLog’s distribution per unit (DPU). The proforma financial effect of the acquisitions on the DPU for the financial year ended Dec 31, 2007 is an additional 0.13 Singapore cent per unit.

Said Chua Tiow Chye, chief executive officer of Mapletree Logistics Trust Management (MLTM), the manager of MapletreeLog: ‘The properties are well located in established industrial areas and are within close proximity to Jurong Port and the larger Jurong Industrial Estate. . . These accretive assets will add to the trust’s stable core of long-term leases which generate stable returns to our unitholders.’

Menlo and its subsidiaries are also MapletreeLog’s tenants in two of its existing properties and the acquisitions will further strengthen the partnership, Mr Chua added.

The acquisitions are expected to be completed by Q2 2008. MLTM said it is confident that at their completion, MapletreeLog will have sufficient debt capacity to fund the acquisitions wholly by debt. It will explore alternative means of funding should the need arise.

MapletreeLog defers its proposed rights issue

GLOBAL capital market volatility has forced Mapletree Logistics Trust (MapletreeLog) to defer its proposed rights issue aimed at raising up to $500 million to fund acquisitions.

The rights issue was announced late last month, but this was swiftly followed earlier this month by Moody’s Investors Service placing the ‘Baa1’ rated real estate investment trust (Reit) on review for a possible downgrade because of its high gearing of over 50 per cent and the market conditions.

Speaking at a press conference yesterday, Chua Tiow Chye, CEO of Mapletree Logistics Trust Management (MLTM), the Reit’s manager, said candidly that MapletreeLog’s share price had been ‘beaten down’ since the rights issue was proposed. He added that it would not ‘raise funds at any price’.

‘We will revisit our fund-raising exercise when market conditions are more conducive,’ MLTM said in a statement yesterday.

MapletreeLog yesterday reported distributable income of $19.7 million, a 68 per cent year-on-year rise, for the fourth quarter ended Dec 31, 2007.

MapletreeLog started FY2007 with 41 properties and ended the year with 70, a rise of 29. ‘Of these 29 properties, nine were acquired during the fourth quarter, bringing the trust’s portfolio size to 70, valued at about $2.4 billion,’ said Mr Chua. The asset value as at Dec 31, 2006, was about $1.43 billion.

MapletreeLog’s full-year 2007 distributable income came to $71.8 million, 78 per cent up year-on-year.

Available distribution per unit (DPU) for Q4 2007 was 1.78 cents, a 23 per cent year-on-year increase. On a full-year basis, DPU was 6.57 cents, 16 per cent higher than its forecast and 30 per cent up year-on-year.

As at Dec 31, 2007, five of its acquisitions pending completion amounted to $183 million, while gearing stood at 53.4 per cent, representing a total debt of about $1.3 billion.

MapletreeLog said that it is comfortable with a 40-45 per cent leverage in the long run, but its current leverage leaves it with an available debt capacity of $405 million to fund future acquisitions.

While this leaves MapletreeLog with ‘enough headroom’ to fund these acquisitions, Richard Lai, deputy CEO of MLTM said that one of the options (for raising funds) open to MapletreeLog would be to sell some of its assets. While there were no plans to sell any buildings, Mr Lai said: ‘We have people knocking on our doors.’

Looking forward, Mr Chua cited the ‘internal logistics’ sector in China and India as showing most potential.

But apart from those acquisitions already announced in Q4 – including three in China, four in Malaysia and two in Japan – Mr Chua was careful to add that given market conditions, MapletreeLog would be more ‘selective’ with respect to new acquisitions.

Instead, he said that ‘yield optimisation’, with a possible upside from rental reversions from 180,000 sq m, would be its driving strategy for 2008. Making reference to the volatile global market conditions, he added: ‘It would be foolish to go for aggressive acquisitions.’

Asia’s logistics industry remains positive

• 4Q07 results above expectations. Revenue was up 49.9% yoy to S$40.3m while distributable profit was up 67.8% yoy to S$19.7m. Full-year revenue was S$141.7m with a distributable profit of S$71.8m and DPU of 6.57cts, which is 2% above our ‘s and consensus’ forecast. The strong performance in the last quarter was attributed to increased revenue from nine acquisitions completed in the quarter. 2007 operating expenses were significantly below expectations as a result of economies of scale. As at 31 Dec 07, MLT’s portfolio reached S$2.379bn, with revaluation gains of S$125.58m.

• Fund-raising postponed, gearing pushing towards regulatory limit. MLT is postponing a rights issue earlier expected to be carried out in the first quarter, due to volatile global capital markets. It remains confident of achieving acquisitions already announced but not yet completed, amounting to S$382m, without equityfunding. Further, management would be concentrating on organic growth, with some 180,000 sq m of logistics space due for renewal. Reversion rates are to be higher than the average of 9.3% in 2007.

• Maintain Outperform; DDM-derived target price lowered to S$1.36 from S$1.65. MLT is expected to gear up to its regulatory limit of 60% in 2008 as equity fund-raising would be difficult. As at 31 Dec 07, MLT’s leverage was 53.4%, and debt headroom of S$405m leaves limited room for our target acquisitions of S$800m this year. We have thus cut our acquisitions target to S$600m a year for 2008-10, with an asset leverage assumption of 60% for 2008. Cost of equity assumption is unchanged at 6.9%. As a result, our DPU estimates for FY08-09 have been reduced by 2-12%. Accordingly, our DDM-derived target price drops to S$1.36. Maintain Outperform as MLT’s underlying assets remain good and the outlook for Asia’s logistics industry remains positive.