MLT – CIMB

First acquisition of the year

Amid a tight acquisition market, MLTrecently announced its proposed acquisition of an industrial warehouse in Iskandar Malaysia –itsfourth property in this areaupon completion. Although we are positiveon the deal, the impact onearningsis expected to be limited. We maintain our Hold ratingandDDM-based (discount rate: 8.1%) target price.

What Happened

MLT recently announced itsproposed acquisition of an industrial warehouse in Iskandar Malaysia from Mapletree Industrial Fund for RM88.5m (S$34.3m). This property comprises seven blocks of single-and double-storey industrial warehouses and one office block with a total GFA of 63,750 sqm. At the moment, theproperty is leased to a subsidiary of LCTH Corporation Bhd on a 12-year triple net lease, expiring in May 2020. At RM88.5m, this acquisition is expected to generate an initialNPI yield of 8.4% and shall be MLT’s fourth asset in Iskandar. Management highlighted that this acquisition will be funded by debt and is expected to be completedby 3QFY14/15.

What We Think

In view of thetight acquisition marketin Singapore, we view this dealpositively as MLT continues to receive support from its sponsor. The acquisition price is lower than the valued price of RM91m-95.4m, while the initial yield of 8.4% is higher than the implied property yield of 7.1% for MLT’s existing Malaysianportfolio. Based onour estimates, debt-funding for this acquisitionis expected to bring about growth in dividend of 0.085Sct/share (+1.2% from FY13 DPU) on a pro-forma basis. Upon completion, MLT’s leverage is expected to rise to a manageable 34.9%.

What You Should Do

This acquisitionforms part of our estimated debt-funded acquisition target of S$150m for FY14.Given the size of thedeal, we expect limitedimpact onFY14/15 earnings. We continue to recommend aHold as we await for more meaningful catalysts.