MLT – DBSV

Still going strong

• Resilient results backed by strong cashflows

• Operational strength intact; 37% gearing is within management’s comfortable range

• Maintain BUY, TP S$1.14

Highlights

Quarter to June12 – in line. Gross revenues and net property income grew by 17.1% and 18.4% y-o-y respectively to S$77.1m and S$67.5m. Performance remained relatively stable q-o-q, underscored by a resilient portfolio. The stronger y-o-y performance was largely brought about by the contribution from new acquisitions – 7 properties in Japan and a further 4 in Korea and Malaysia that were completed in recent months. Borrowing costs increased by 19.4% due to an enlarged portfolio coupled with marginally higher average interest costs (2.4% vs 2.2% a year ago). As a result, distributable income increased by 18% to S$45.8m. Distributable income to unitholders (after perpetual security holders) amounted to S$41.1m (+5.9% y-o-y), translating to a DPU of 1.7 Scts.

Our View

Operational strength continues. Occupancy rates remained firmed at 99% due to strong take-up in Singapore, with rental reversions averaging at 10% higher vs preceding levels (largely in Singapore but is expected to normalise in the coming years as more supply comes on stream). To date, MLT has renewed close to 42% of total NLA that is due to expire in the current financial year, further boosting its strong income visibility.

Gearing relatively stable at 37%. Compared to a quarter ago, gearing inched up to 37% due to additional debt taken to finance recent Korean acquisitions. We estimate that gearing would have been higher at c40% after adjusting for the treatment for the perpetuals (in accordance to Moody’s guidelines). Nevertheless, metrics are healthy, with interest cover at 5.8x, and an average debt duration of 4.4 years.

Recommendation

BUY, TP S$1.14 based on DCF. Stock offers a potential yield of close to 7%, which is higher than average peers and is attractive given its resilient earnings stream. The manager continues to look at opportunities to optimise portfolio performance through potential redevelopment or asset enhancement. Acquisitions will likely continue to feature supported by the sponsor’s pipeline as an avenue for growth in the medium term.