REITs share price has been falling year to date. The FTSE REIT index is down 13.9% year to date. The fall in REITs share price is due to the fact that inflation maybe rising again similar to the 1970s.
Even the so call good REITs with strong sponsors were not spared. Mapletree Logistics Trust is one good example. Its share price is down 23.39% year to date underperforming the FTSE REIT index.
Many investors will be wondering whether Mapletree Logistics Trust (MLT) is a bargain now to buy at current price. In this article, we will dive deeper into MLT and see whether it is time to add to your watchlist.
Review of Mapletree Logistics Trust Financial Metrics
In its 3Q FY23/24 financial results, MLT reported gross revenue is up 2.1% to S$184.0 million. The higher gross revenue is mainly due to contribution from existing properties in Singapore and contribution from acquisitions completed in 1Q FY23/24.
However, it is partly offset by lower contribution from China, absence of revenue from divested properties and property under redevelopment. DPU increased slightly by 1.2% to 2.253 cents
Finance costs increased significantly by 5.5% to S$36.7 million. This is mainly due to the incremental borrowings to fund FY23/24 acquisitions and expiring interest rate swaps were replaced at higher rates and higher base rates on unhedged loans.
Gearing is still relatively healthy at 38.8% while interest cover ratio is at 3.7x. 83% of the total debts is on fixed rates.
Portfolio Occupancy
MLT overall portfolio occupancy is at 95.9% as at Dec 23. This is lower compared to Sep 23 which was 96.9%. China properties has the lowest occupancy at 93.1%. Overall rental reversion was a positive 3.8%.
However, if China properties are excluded, portfolio rental reversion would be positive 6.2%. Out of 187 properties that MLT has, 43 properties are in China.
This could be the main cause of MLT underperformance in share price as its China properties has the lowest occupancy rates and lower contribution to MLT revenue.
This is definitely a risk that investors need to weigh before investing or DCA this REIT. Investors need not look further for proof regarding REITs having properties in China.
Investors may look into CapitaLand China Trust and Mapletree Pan Asia Commercial share price which both has dropped more than 20% YTD.
MLT managment indicated that global outlook remains subdued, weighed down by high interest rates, slowing growth and persistent geopolitical concerns in the Middle East.
There is still steady leasing demand seen across most of MLT’s markets, although China’s leasing environment remains challenging with negative rental reversions expected to persist in the next few quarters.
With the expected poor performance from its China properties, MLT share price could remain under pressure for the foreseeable future. In addition, most regional currencies continued to weaken against the Singapore dollar, albeit at a more moderate pace.
The Chinese Yuan especially has weaken against the Singapore currency and this would put pressure on MLT’s DPU. Borrowing costs are expected to continue rising too as expiring interest rate swaps are replaced at higher rates. You can view the REIT website here.
Conclusion
Israel has made a counter attack on Iran at the time of writing this article. This further soured market sentiment putting further pressure on REITs share price.
In addition, oil price has spike up to due tensions in the Middle East. This could complicate matters for the FED in deciding whether to cut rates.
As for MLT, investors need to take special note of the poor performance of its China properties and also its perpetual securities which are due soon before deciding whether to buy or DCA this REIT.
The valuation of MLT may seem very cheap at current price. However, given the above mentioned factors, valuation could remain cheap for a long time and investors need to decide whether they are patient enough to wait especially if the DPU starts to decline.
