MLT – CIMB

Steady start to the year

• 1Q09 results in line. Distribution income of S$28.6m and DPU of 1.47cts are in line with Street and our expectations (27% of full-year forecast). Yoy DPU growth was – 22.6% due to additional units from a rights issue in Aug 08, while qoq growth was marginal at 0.7%. Growth in net property income of S$46.2m was strong yoy (+24%), but significantly slower qoq (+2.4%) with a reduced number of new acquisitions to boost the topline.

• Occupancy down 1.6% pts; renewals on track. Occupancy level in MLT’s portfolio fell 1.6% to 98% in Mar 09. Nonetheless, this was still materially higher than islandwide warehouse occupancy of 92.8%. Management reported that over 35% of leases (as a percentage of gross revenue) expiring in 2009 have been renewed. This represents 7% of overall portfolio revenue. Average reversion rates are flat compared with prevailing rates. Tenant arrears remained small at 1% of annualised gross revenue.

• Short-term debt manageable. MLT has S$151m or 12.5% of total debt due in 2009. Management assures that it has sufficient credit lines to refinance this debt. These include S$185m from: 1) a S$46m 3-year term loan completed on 31 Mar 09; 2) S$99m of secured revolving credit facilities; and 3) S$40m of cash earmarked for debt refinancing. Management is also documenting at least another S$80m of debt facilities which will include committed revolving credit facilities and term loans. Average weighted borrowing cost remains low at 2.9% with no assets secured. Asset leverage for the quarter was 38.3%, excluding S$40m of borrowings earmarked for refinancing. This is in line with MAS’s clarification in Jan 09 that debt raised for refinancing purposes earlier than maturity would not need to be counted in the calculation of REITs’ aggregate leverage limit.

• Maintain Outperform and target price of S$0.60. Our DDM-derived target price (discount 9.6%) stays at S$0.60, with no changes to our estimates. Although the pressure to maintain occupancy and rents remains, we are encouraged by its relatively high tenant retention rate of 80% and success in securing refinancing. We believe MLT will be able attain our forecast distribution for FY09.