MLT – DB

Strengthening foothold in Korea with second acquisition

MLT has agreed to acquire Multi-Q Centre in South Korea for KRW 28bn (S $32m). The property comprises 2 blocks of warehouses with total GFA of 308,924 sf located in Gyeonggi-do, a well established logistics cluster. Vendor Multi-Q Logistics will lease back the asset for 5 years with annual rental escalations. The acquisition is expected to complete by end 3Q10 and will bring gearing up to 44.2% assuming fully debt funded.

Yield accretive; 7th in a string of acquisitions. This is MLT's second acquisition in South Korea since 2008 and the 7th since Dec last year, bringing total acquisitions YTD to around S$460m, out of which S$260m have been completed. The acquisition is yield accretive with initial yield of >9% compared to the implied yield of 7.7% for its existing property in Korea. The property also has unutilized plot ratio which can add an additional GFA of around 40,903sf when utilized, subject to approval. Upon completion, this will enlarge MLT's portfolio size to S$3.3bn, further diversify its portfolio and enhance its growth profile.

Minor DPU accretion; maintain Buy with TP of S$0.95. No pro-forma DPU accretion or definite financing method was provided. We estimate a minor 0.5% boost to FY11-12 DPU and DDM assuming 60:40 equity/debt. With gearing of 44.2%, the highest in the sector and nearing its optimal gearing of 45%, we think an equity raising is likely in the near term especially if acquisitions continue at the current pace. We maintain Buy with valuations attractive at FY11e yield of 7.4% and 1.0x P/B.