Excerpts from UOBKayHian report

Mapletree Logistics Trust (SGX: M44U)

• Mapletree Logistics Trust (MLT) eked out positive rental reversions of 2.9% in 4QFY24 driven by Singapore (+11.1%), despite the drag from China (-10.0%).
• Portfolio occupancy was stable at 96.0% as of Mar 24. MLT’s properties in Tier 1 cities, such as Shanghai and Guangzhou, are well located and resilient.
• Properties in Tier 2 cities suffered negative rental reversion at low teens and the weakness is expected to persist.
• MLT provides FY25 distribution yield of 6.2% (FLT: 6.7%).

Maintain BUY. Target price: S$1.89.

Hampered by strong SGD

Mapletree Logistics Trust (MLT) reported DPU of 2.211 S cents for 4QFY24 (-2.5% yoy), which is in line with our expectation. The results included divestment gains of S$12.0m.

Gross revenue and NPI increased by 1.2% and 0.6% yoy in 4QFY24 as contributions from overseas assets were curtailed by a strong SGD (JPY: -11% yoy, CNY: -2% yoy, MYR -5% yoy and KRW: -2% yoy).

On a constant currency basis, revenue and NPI would have grown by 3.6% and 3.0% yoy respectively. Higher contribution from existing properties and new acquisitions were offset by weaker performance in China.

Persistent weakness from China

MLT achieved positive rental reversion of 2.9% in 4QFY24 (Singapore: 11.1%, Vietnam: 4.0%, Malaysia: 3.1%, South Korea: 2.6% and China:
-10.0%).

Excluding China, positive rental reversion would be 7.1%. Portfolio occupancy was stable at 96.0% as of Mar 24. Vietnam and India maintained full occupancy.

Occupancies for Australia, Japan and Malaysia were maintained at above 98%.

Translation loss from overseas properties

MLT incurred net fair value loss of S$1.8m due to properties in Australia (cap rate expanded 75-100bp and rental growth) and China (lower occupancy and rental decline), which is partially offset by gains in Japan  and rental growth) and Hong Kong (rental growth).

There was currency translation loss of S$470.9m as 80.6% of MLT’s AUM reside overseas. NAV per unit declined 4.2% yoy to S$1.38.

Resilient balance sheet

MLT’s aggregate leverage was healthy at 38.9% as of Mar 24. Its average debt duration was 3.8 years. Its average cost of debt was 2.7% for 4QFY24, compared with 2.5% in 3QFY24. Adjusted interest coverage ratio was healthy at 3.1x.

Stability from geographical diversification

Outlook is clouded by geopolitical uncertainties and potential trade conflict. Rental rates across most of MLT’s markets are expected to remain stable despite economic slowdown.

Unfortunately, negative rental reversion in China is likely to persist. Management also sees continued headwinds from weakness of regional currencies against the SGD.

Cost of debt could trend higher as loans are refinanced and hedges are replaced at higher interest.

Repositioning towards modern logistics properties near population centres

MLT will focus on rejuvenating its portfolio towards modern high-specs logistics properties. Management intends to expand in growth markets, such as Malaysia, Vietnam and India.

Hong Kong and Japan are attractive due to tight supply. Australia and South Korea have experienced cap rate expansion but capital values remain elevated.

Valuation/Recommendation

We roll over our valuation to the next financial year. Our target price of S$1.89 is based on the Dividend Discount Model (cost of equity: 7.0%, terminal growth: 2.8%).

Accretive acquisitions to rejuvenate and reposition towards modern specifications logistics facilities, domestic consumption and e-ommerce and positive contributions from redevelopment projects in Singapore and Malaysia will provide catalyst for Singapore.

You can find the full report here and the company website here.