Excerpts from OCBC Investment report
Mapletree Logistics Trust (SGX: M44U)
- 3QFY25 (financial year ending Mar 2025) distribution per unit (DPU) fell 11.1% year-on-year (YoY) to 2.003 Singapore cents
- Portfolio occupancy improved by 0.3 percentage points (ppt) quarter-on-quarter (QoQ) to 96.3%; overall 3QFY25 portfolio rental reversions back to positive territory at 3.4% despite drag from China
- Aggregate leverage ratio almost unchanged at 40.3%
Investment thesis
Mapletree Logistics Trust (MLT) has a diversified logistics portfolio spread across key markets in Asia such as Singapore, Hong Kong, Japan, Australia, Vietnam, China and India.
Management has strong execution capabilities, and its portfolio capital recycling strategy has also resulted in net divestment gains being distributed to unitholders.
Although MLT has exhibited resiliency in the past and will also continue to be a beneficiary from the structural shift towards ecommerce growth trends ahead, it will be adversely impacted by rising borrowing costs, FX fluctuations and more challenging operating conditions in China which are expected to weigh on its distributable income growth in the near term.
3QFY25 Results
3QFY25 DPU slipped 11.1% YoY but met our expectations. Gross revenue and net property income (NPI) fell 0.9% and 1.4% YoY to SGD182.4m and SGD157.2m, respectively.
This was the result of weaker contributions from China and FX headwinds (mainly KRW, HKD and JPY) but partially offset by stronger contributions from Singapore, Australia and Hong Kong.
On a constant currency basis, MLT’s gross revenue would have increased 0.6% and NPI would have been flat YoY. Overall borrowing costs rose 8.7% YoY. Coupled with lower distributions of divestment gains and a slightly larger unit base, MLT’s DPU dipped 11.1% YoY to 2.003 Singapore cents.
If we exclude the distribution of divestment gains for both quarters, MLT’s adjusted DPU would have been lower by 7.5% YoY to 1.855 Singapore cents. Cumulatively, MLT’s 9MFY25 NPI was down 1.5% YoY to SGD472.5m, while DPU saw a decline of 10.2% to 6.098 Singapore cents. This accounted for 75.4% of our initial FY25 forecast.
Overall positive portfolio rental reversions returned to positive territory of 3.4% in 3QFY25 despite continued drag from China (-10.2%)
MLT’s overall portfolio occupancy recorded a second consecutive quarter of 0.3 ppt QoQ improvement, thus ending the quarter at 96.3%. Vietnam, Australia and India maintained their 100% occupancy rate while Japan was not far behind at 98.8%.
China’s occupancy rose 0.4 ppt sequentially to 93.5%, but rents were once again weak as rental reversions came in at -10.2% in 3QFY25 (2QFY25: -12.2%). However, strength in other areas of its portfolio helped to offset this and overall portfolio rental reversions reversed from -0.6% in 2QFY25 to +3.4% in 3QFY25.
The largest boost came from Australia (+27.9% but for a small lease) and Singapore (+7.5%). Excluding China, MLT’s portfolio rental reversions would have been +5.4%.
Management expects rental reversions in China to stay in the negative low-teens level for another quarter or two, before easing to negative high single-digit level. However, there are uncertainties over tariff outcomes from Trump’s administration and this could dampen sentiment and economic outlook in China.
There are also some concerns in Korea and Hong Kong due to higher upcoming supply, which will result in a moderation in rental reversions in both markets.
Continued capital recycling as aggregate leverage ratio was almost unchanged at 40.3%
From a balance sheet perspective, MLT’s aggregate leverage ratio inched up marginally from 40.2% (as at 30 Sep 2024) to 40.3%. 82% of its total debt has been hedged, while its overall cost of borrowing was unchanged QoQ for the fourth consecutive quarte at 2.7%.
This is expected to increase to ~2.9% in FY26. MLT continued its capital recycling activities, with the announcement and/or completion of divestment of four properties in 3QFY25 and another two properties to be divested post 3QFY25.
We trim our DPU forecasts slightly as we factor in a larger number of units outstanding. We also raise our cost of equity assumption from 6.4% to 6.6% due to a higher risk-free rate of 2.75% and slightly higher beta. Consequently, our fair value estimate is reduced from SGD1.68 to SGD1.61.
You can find the full report here and the REIT website here.
