Keep the assets coming

• Full year below expectations. FY06 DPU of 5.1cts is 2% short of our forecast but in line with consensus estimate. A larger mix of multi-tenanted acquisitions compressed MLT’s NPI margin, which came in below expectations. Gross rental revenue surged 167% yoy to S$26.9m in 4Q06, on account of a larger portfolio of S$1.4bn at end-FY06 vs. S$462m a year ago. Jurong Logistics Hub, MLT’s largest property in Singapore to date, also began contributing in 4Q06. Overall occupancy was 99.6% while renewed rent rates were on average 7.1% higher than the rates in 4Q06. MLT’s gross gearing remained manageable at 55%.

• Portfolio to grow by another S$1bn this year. MLT has announced S$221m worth of acquisitions scheduled for completion by 1Q07. These acquisitions will bring MLT’s assets to S$1.6bn. MLT will have additional debt headroom following the latest round of equity fund-raising (assuming unitholders’ approval is secured today). As such, we believe MLT is financially equipped to meet our portfolio target of S$2.4bn by end-FY07.

• Overseas properties from sponsor. Two overseas properties that sponsor Mapletree is developing – Lingang Free Port (S$39m, GFA 46,500 sq m) in China and the Vietnam Singapore Industrial Park (VSIP 1, GFA 23,600 sq m), are near completion. Pre-leasing activities have begun for both properties, which could be injected into MLT as soon as this year.

• Introducing FY09 DPU forecast. Assuming MLT’s assets grow from S$3.4bn in FY08 to S$4.4bn by end-FY09, with the acquisitions financed by 45% debt and 55% equity, we initiate our FY09 DPU forecast of 7.1cts. Our FY07-08 DPU forecasts remain intact, translating into forward yields of 4.8-5.8%, which are attractive compared with the average 4.5-5% that S-Reits currently offer.

• Maintain Outperform. Our DDM-based target price of S$1.32 remains relevant. At our FY07 DPU forecast of 5.8cts, prospective dividend yield is 4.4%. This is in line with the FY06 dividend yield that MLT trades at. MLT has met its portfolio target in its first full year of operation. Its expansion pipeline remains solid and it remains one of the fastest-growing Reits in Singapore. Maintain Outperform.

More of the same in FY07

Growth again due to acquisitions. Mapletree Logistics Trust (MLT) reported a good set of 4Q06 results. Revenue was up over 167% YoY to S$26.9m and distributable income improved 97% to S$11.8m. Distributable income per unit (DPU) was less robust, improving by 38% YoY to 1.45 cents and slightly better than market’s forecast of about 1.40 cents. The bulk of the growth came mainly from the acquisition of 23 properties over the last 12 months. At the end of 4Q06, MLT has a portfolio of 41 properties. This enlarged portfolio in turn led to MLT’s asset size increasing by over 3-fold from just above S$460m in FY05 to about S$1.4bn by end FY06.

All eyes on equity raising. Presently, MLT is in the processing of raising new equity from unit-holders. The fund to be raised is estimated at S$359m and will be used in multiple areas; to lower MLT’s high gearing (of about 55%), to finance previously announced acquisition of 15 properties with a total value of about S$221m and finally to provide debt headroom for future acquisitions. Post the equity fund raising, we estimate MLT’s gearing to fall to about 46% and this would position it well to continue its growth strategy via acquisition. The EFR is expected to complete no later than end Feb 2007 with an Extraordinary General Meeting to be held on 17 Jan 2007.

Expect more of the same in 2007. Including the recently announced purchases and when completed, MLT’s asset size will increase to about S$1.7bn. Going into 2007 and with the expected success of the EFR, MLT is well positioned to continue its growth strategy. We see an annual acquisition of S$1.0bn as not improbable with one or two cash calls per year.

Maintain BUY with higher fair value. MLT has done exceedingly well since our “A possible laggard play” report in Oct. The unit price has risen from S$0.97 to S$1.19 currently, up more than 22%. However, at the current pace of acquisition, our target asset size of S$2.1bn is likely to be breached fairly soon. We have thus revised up our target size to S$3.0bn, and this in turn has a positive impact on our fair value estimate. We have thus revised up our fair value from S$1.12 to S$1.34 and maintain our BUY recommendation.

All eyes on equity fund raising

Growth again due to acquisitions. Mapletree Logistics Trust (MLT) will be reporting its 4Q06 results on 16 Jan 2007. We are forecasting FY06 DPU of 5.0 cents or 1.38 cents for 4Q06. This represents a 4.5% QoQ and 29% YoY improvement and comes mainly from completed acquisitions over the last quarter. The market is going for 4Q06 DPU of 0.98 to 1.88 cents.

Equity cash call as expected. In our last report dated 27 Oct 2006, we had warned that an equity cash call was imminent. This was because we saw the rapid rate of acquisition that is likely to push MLT’s gearing close to the maximum allowable of 60%. Indeed, MLT has over the last two months of 2006 bought a total of 14 properties with a total value of S$227m. Assuming that MLT continues to debt finance its acquisitions, gearing would be at an unacceptable level of 58%. Over Christmas, MLT announced its intention to raise S$359m in new funds via an Equity Fun Raining exercise (EFR). With this new funding, MLT’s gearing would fall to about 46% and this would position it well to continue its growth strategy via acquisition. The EFR is expected to complete no later than end Feb 2007 with an Extraordinary General Meeting to be held on 17 Jan 2007.

Expect more of the same in 2007. Including the recently announced purchases and when completed, MLT’s asset size will increase to about S$1.7bn. Going into 2007 and with the expected success of the EFR, MLT is well positioned to continue its growth strategy. We see an annual acquisition of S$1.0bn as not improbable with at least two cash calls per year.

Maintain BUY for now. MLT has done exceedingly well since our “A possible laggard play” report in Oct. The unit price has risen from S$0.97 to current S$1.17 or up about 21%. At present valuation, it is trading in line with our fair value of S$1.12 based on an asset size of S$2.1bn. At the current pace of acquisition, our target size could be breached fairly soon and we are likely to revise up our asset target size. In light of MLT’s impending FY06 results, to be released in a week’s time, we are maintaining our estimates and our BUY recommendation for now.