MLT – CIMB

Stable quarter

1Q13 was boosted by positive rental reversions and completed acquisitions. Management appears to be adopting a defensive stance as it continues to trade rentals for occupancy. Stability remains underpinned by its long WALE and high occupancy.

1Q13 DPU meets our estimates and consensus at 24% of our full-year estimates. Our forecast factors in S$150m of acquisitions for FY13. We keep DPUs, DDM target price (disc. rate: 8.6%) and rating unchanged pending analyst briefing. Maintain Outperform on the catalyst from acquisitions.

1Q13 NPI up 18% yoy

Underpinned by a long WALE of six years and high occupancy, MLT’s portfolio remains one of the most stable among S-REITs. 1Q13 NPI was up 18% yoy and 10% qoq as improved NPI margins added to a 17% growth in top-line from organic growth and acquisitions. While net profit was hit by a S$15.1m foreign exchange loss, the impact was mitigated as 85% of its distributable amount was hedged. DPU grew by 6% yoy after interest and perpetuity coupon payments and 2% qoq excluding distribution of divestment gains last quarter.

Trading rentals for occupancy

Rental reversions remained commendable despite moderation to 10% from 12% last quarter. This is at the top end of management’s previous guidance of 5-10%, in line with its stance of trading rents for higher occupancy in the face of macro-headwinds. Occupancy strengthened to 99.0% from last quarter’s 98.7%, benefitting from good take-up at three of its local multi-tenanted assets, which were converted from single-user assets last year.

Capital management and acquisitions

Management remains on the lookout for acquisitions, although its top priority continues to be in active asset and lease management. Asset leverage is unchanged at 37%, still conducive for debt-funded acquisitions. We have assumed S$150m of acquisitions for FY13.