Excerpts from UOBKayHian report
Ascott Residence Trust (SGX: HMN)
- Mapletree Logistics Trust (MLT) improved portfolio occupancy by 0.3ppt qoq to 96.0% in 2QFY25. Unfortunately, China incurred negative rental reversion of -12.2%.
- The outlook for China remains challenging and the weakness is expected to persist over the next few quarters.
- Mapletree Logistics Trust cautioned that cost of debt would continue to rise as loans are refinanced and interest rate swaps are rolled over at higher interest rates in 2HFY25 and FY26.
- MLT provides FY26 distribution yield of 5.9% (FLT: 6.2%).
Maintain HOLD. Target price: S$1.45
2QFY25 Results
Mapletree Logistics Trust (MLT) reported 2QFY25 DPU of 2.027 S cents (-10.6% yoy), which is quite in line with our expectation. Excluding distribution of divestment gains, DPU would have declined a smaller 8.8% yoy to 1.907 S cents.
Still hampered by strong SGD
Gross revenue and NPI fell 1.8% and 2.1% yoy respectively due to a lower contribution from China, absence of contribution from divested properties, and depreciation of regional currencies against the SGD (JPY: -2.2% yoy and KRW: -3.9% yoy).
Growth from Singapore and Australia was offset by a weaker performance in China. On a constant currency basis, revenue was flat yoy and NPI declined 0.3% yoy.
Stable occupancies on a portfolio-wide basis
Portfolio occupancy improved 0.3ppt qoq to 96.0% in 2QFY25 due to backfilling of vacant spaces in Hong Kong, South Korea and Vietnam. Its logistics properties in Australia, India and Vietnam were fully occupied.
Occupancies for Singapore, Japan, Hong Kong, South Korea and Malaysia remained above 95%. Occupancy in China remained at 93.1%.
Tier 2 cities in China incurring negative double-digit rental reversion
MLT incurred negative rental reversion of -0.6% on a portfolio-wide basis. China saw a negative rental reversion of -12.2% (Tier 1 cities: -3.5%, Tier 2 cities: -13%).
Excluding China, rental reversion was positive at +3.6%. Management expects the negative double-digit rental reversion to persist for another two quarters and moderate to negative single-digit rental reversion thereafter.
About 90% of its leases in China have already been marked-to-market. Thus, the magnitude of negative rental reversion is expected to moderate.
Cost of debt still inching higher
Aggregate leverage increased 0.6ppt qoq to 40.2% as of Sep 24. Adjusted interest coverage ratio was healthy at 3.0x. Its average cost of debt was stable at 2.7% for 2QFY25.
MLT cautioned that cost of debt would continue to rise as loans are refinanced and interest rate swaps are rolled over at higher interest rates in 2HFY25 and FY26. Management guided for cost of debt of 2.8% at end-FY25 and 3.0% at end-FY26.
Efforts to lower financing costs
MLT has swapped a portion of its USD, AUD and HKD loans into CNH so as to benefit from lower interest rates in China. It has issued S$180m of 4.30% fixed rate perpetual securities to redeem S$180m of perpetual securities with a higher rate of 5.2074%
Valuation/Recommendation
Maintain HOLD. Our target price of S$1.45 is based on the Dividend Discount Model (cost of equity: 7.0%, terminal growth: 1.5%).
You can find the full report here and the company website here.Â
