MLT – DB

3Q09 results in line; focus returning to acquisitions

MLT’s 3Q09 DPU of 1.48cts (flat QoQ, -20% YoY) was in line with expectations. NPI rose 9.5% YoY on accretion fr new acquisitions but fell 3.5% QoQ due to a S$2.2m doubtful debt relating to a pre-termination of a lease in S’pore.

Impact of the downturn filtering through. Overall occupancy declined slightly fr 98.3% to 97.1% with tenant retention dipping fr 80% to 74%. Rental reversions were flat in 3Q with continuing focus on tenant retention. ~80% of leases expiring in 2009 have been renewed. Rental in arrears rose slightly to 1.8% (fr 1%) of revenue primarily on the pre-termination of the lease. Gearing remains stable at 38.1% with avg borrowing cost a low 2.7%. Only S$19m of working capital loans are due for renewal in 4Q09 which is
sufficiently met with its S$78m RCF.

Acquisitions expected. Mgmt is currently in advanced negotiations for some acquisition opportunities both in S’pore and offshore (Japan, HK) & have noted more realistic pricing fr sellers (indicative cap rates of ~9% for selected deals in S’pore). Its Sponsor also continues to incubate the pipeline of devt projects with ~S$300m completed or nearing completion. Mgmt reiterated that it has no plans to raise equity purely for recapitalization with any potential fund raising to be motivated by accretive acquisitions. We have raised our FY09-11E DPU slightly by 2-3% to reflect lower than expected financing cost, and believe MLT is on track to meet our FY09E DPU of 5.87cts. We maintain our Buy rating with revised TP of S$0.82 (fr S $0.81) with attractive valuations at 7.8% FY09E yield and 0.85x P/B. MLT is well positioned to weather the downturn with its well-diversified portfolio and recovering credit & capital markets could revive its acquisition-led business model and catalyst shr price performance.