MLT – BT

Another Japanese Venture

• Acquiring Hiroshima Centre @ 7% yield

• Japan is an established logistics hub with strong customers

• Maintain BUY with 28% total return to S$1.07 TP

Venturing into Japan again. MLT announced that they have acquired Hiroshima Centre in Chugoku, western Japan for JPY 7.3bn (S$114.2m). The property consists of a 2-storey warehouse for cold/frozen storage and a 2-storey dry warehouse with an ancillary office with a combined GFA of 43,600 sqm. The asset will be leased back to Nippon Access, one of MLT’s current tenants, on a 16-year lease, with a periodic rent review every 5 years. This acquisition further strengthens MLT’s earnings visibility & stability with a long average weighted lease expiry of c. 6 years. In addition, there is opportunity to increase the property’s GFA by another 45,000 sqm, which the manager is keen on, subject to interest.

Initial yield of 7% is accretive. Initial yield is estimated to be c.7% (in line with its recent Japanese transactions which were done in the region of 7.0%-8.6%) and above its current implied yields of 6.5%. MLT is expected to fund the acquisition from debt sources. Post acquisition gearing will inch up slightly to 39.7%, which is close to the 40-45% target ratio. As such, we believe that further acquisitions might be funded partially by new equity, which we have assumed in our forecasts.

Living up to expectations – maintain BUY and S$1.07 TP. Japan continues to remain an attractive investment thesis in the longer term and will continue to play a strategic role in MLT’s strategy as it is an established logistics centre with customers having strong credit profiles. Post acquisition, MLT’s exposure to Japan will increase to 26.4% (from 23.8% previously). This acquisition will meet a third of our S$300m acquisition forecasts, which we believe it is attainable. Additionally, we have assumed an equity raising (40/60 debt – equity ratio) in our numbers. We like MLT for its growth ability, leveraging on its existing client and partners network. MLT now offers a FY11 – 12 DPU yield of 7.4 -7.7%, which is attractive. Maintain BUY.