MLT – DBSV

Portfolio to grow

• Ends 2010 on a strong note with 4Q10 DPU of 1.55 Scts

• Acquisition growth remains the main driver in 2011, raising acquisition assumptions to S$300m

• BUY, revised TP to S$1.07 offering total return of 16%.

Strong DPU of 1.55 Scts expected. Topline and net property income were higher at S$61.0m (+20% yoy, +12% qoq) and S$53.8m (+22%yoy, +13% qoq), mainly due to new asset contributions towards 2H10, while underlying portfolio remained resilient. Distributable income came in at S$36.8m (+28%yoy), aided by interest savings from lower interest environment (average cost of debt fell to 2.2% vs 2.8% a year ago). The trust also recorded a slight revaluation gain of S$18.9m and NAV remained stable at S$0.85 per share.

Healthy occupancy of 98%; leasing demand remains strong. Portfolio occupancy remains at a high of 98%, with Malaysia seeing sequentially higher occupancy, which increased by 5%. Looking ahead into 2011, 16.6% of its revenues will be up for renewal (the majority are derived from its Singapore and HK operations). We believe the manager should deliver positive rental reversions into 2011 (forecasting average 3% for portfolio in 2011).

Expect target acquisitions to be yield accretive. Backed by sponsor’s visible development pipeline while considering 3^rd party opportunities, we believe MLT remains in a sweet spot to deliver higher value – trading at implied FY11 yield of 6.5% means that target acquisitions; if executed, should be accretive. We have now assumed S$300m (doubled from previous S$150m) worth of acquisitions in 2011, to be funded on a 35-65% debt-equity ratio.

BUY, DCF-based TP raised to S$1.07. Trading at 1.2x P/BV, we believe the market is pricing in acquisition growth, which we are comfortable, given its execution track record. MLT offers a growing FY11-12 yield of 6.6-6.8%.