MLT acquires Daehwa Logistics Centre, its ninth property in South Korea, for SGD31.2m which is to be fully debt funded.

At an initial NPI yield of 8.3%, it is a DPU-accretive acquisition.

A positive move but too small to ‘move the needle’ for MLT. Reiterate SELL with a higher TP of SGD1.01.

What’s New

MLT announced last evening that it has entered into a sale and purchase agreement for the acquisition of Daehwa Logistics Centre in South Korea for KRW25.5b (SGD31.2m). We believe this asset was highlighted by management during the FY3/14 briefing on which MLT had previously signed an MOU. The new property is fully occupied by three quality tenants: eBay, Acushnet and Daehwa. The leases have a weighted average lease term to expiry of 3.5 years with built-in annual rental escalations for 70% of the leased area. The acquisition will be fully debt funded with completion expected by July. MLT’s aggregate leverage ratio is expected to increase marginally to 33.8% from 33.3% as of 31 Mar 2014.

What’s Our View

The property’s initial NPI yield of 8.3% compares favourably to MLT’s cost of borrowing of 1.9% and overall portfolio NPI yield of 6.5%. While it is a DPU-accretive acquisition, it would only raise FY3/15E-FY3/17E EPS by up to 0.8%. Post transaction, revenue contribution from South Korea will increase from 8.7% to 9.4%.

Nonetheless, the size of the acquisition is too small to ‘move the needle’ for MLT and we look forward to more sponsor injections and third-party acquisitions in FY3/15E. We remain downbeat on industrial warehouse properties, as this segment is the most at risk of a sharp physical price correction. Maintain SELL on MLT with a slightly higher TP of SGD1.01 (previously SGD1.00) after factoring in this acquisition.  

Source: Maybank Kim Eng Research - 27 May 2014