But better than expected. 1Q results outperformed our expectations by 5-8% due to our conservative occupancy assumptions for FY09. Our estimates incorporate a fairly bearish 90% portfolio-wide occupancy assumption over FY09-10. MLT's overall occupancy as at 31st March is 98.5%, versus 99.6% as at 31 December. Some pockets of weakness have emerged: Hong Kong occupancy has fallen from 98.2% as at December to 95.8% at March, while China occupancy has fallen from 99.2% to 91.7%.
Note that the China fall is because of problems with one tenant (contributes less than 1% of total revenue). At the same time, other markets like South Korea, Japan and Malaysia are holding at 100% occupancy. This variety in performance explains the small size of the overall dip, and validates the portfolio's advantages of geographical diversification and balance between multi-tenanted and sale-and-leaseback properties.
Refinancing underway. MLT is geared at about 38.3% debt-to-assets. During the quarter, MLT raised some S$105m in new loans to refinance existing debt. As of 31 March, about S$151m in loans will mature this year, and the manager announced significant progress in arranging refinancing. While a US$20m term loan is still being negotiated, MLT has enough committed lines and cash on hand to refinance all 2009 loans.
Valuation achieved. We believe our investment thesis still stands: occupancy will be the key performance driver in the industrial space; but MLT's diversified and high quality portfolio will allow it to deliver reasonably stable income to unitholders over the next two years. MLT has had a good run, up 15.4% since our re-initiation in February. However, we have not seen enough corresponding positive signals for the industrial market. As our fair value estimate of S$0.45 has been achieved, we are downgrading the stock to a HOLD.
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