- Strategic Asset Divestments: MLT plans to divest around S$1 billion in assets, focusing on rejuvenating its portfolio with higher-spec, modern logistics properties.
- Emerging Market Acquisitions: The trust is eyeing accretive acquisitions in emerging markets like Vietnam and India, as well as in developed markets like Japan.
- Resilient DPU Yield: Despite challenges, the projected FY2025 DPU yield of 5.7% has factored in the slower growth outlook.
Mapletree Logistics Trust (SGX: M44U) (MAPL.SI), or MLT, faces headwinds, particularly from its Chinese operations, but continues to show resilience through strategic asset and financial management.
MLT is a logistics real estate investment trust (REIT) that invests in logistics properties across Asia-Pacific. The trust recently reported its second quarter ended September 30, 2024 (2Q FY2025) results, which were in line with our expectations. Singaporean sovereign wealth fund Temasek Holdings, a major shareholder, holds 29% of the MLT.
Result Highlights
1. China Operations Drag Revenue Lower
Revenue for the quarter declined by 1.8% year-on-year (YoY) to S$183.3 million, while net property income (NPI) fell by 2.1% to S$158.6 million, primarily due to lower contributions from China and weaker currencies such as the Japanese Yen, Korean Won, and Chinese Renminbi. These were partially offset by higher income from Singapore and Australia.
2. Boost in Portfolio Occupancy from Higher Take-Ups
Portfolio occupancy improved to 96% by the end of 2Q FY2025, driven by higher take-ups in Singapore, Japan, Hong Kong, South Korea, Vietnam, and Australia, thanks to the backfilling of vacant spaces.
Despite this, the overall rental reversion declined 0.6%, heavily influenced by a 12.2% drop in China. Excluding China, the rental reversion was a positive 3.6%, with strong performances in Singapore (+12.5%), Vietnam (+4.1%), and India (+4.1%).
3. DPU Decline Within Expectations
Distribution per unit (DPU) stood at S$0.02027, a 10.6% drop YoY. Distributable income was $102.3 million, down by 9.1% YoY. Despite the lowered DPU, it still met 25.3% of our firm’s FY2025 forecast. The projected DPU yield of 5.7% is seen as having largely accounted for the slower growth outlook.
4. Increased Gearing but Stable Costs
Gearing increased to 40.2% by the end of 2Q FY2025, while interest costs remained stable at 2.7%. About 84% of its debt is hedged into fixed rates, and 77% of its distributable income is hedged into Singapore dollars for the next 12 months.
MLT is optimizing its debt mix to manage higher borrowing costs, which saw an 8.2% YoY increase to S$39.8 million. The company swapped a portion of United States Dollar, Australian Dollar, and Hong Kong Dollar loans into Chinese Renminbi, capitalizing on China’s lower interest rates.
Management Guidance
1. Challenges in China Continue to Impact Performance
China remains a critical concern for MLT, with approximately 90% of its leases in the country marked to market. Management expects the negative rental reversion in China to persist in the near term, with 43-44% of the leases due for re-contracting in 2H FY2025 and FY2026 located in China.
2. Asset Management Strategy Focuses on Rejuvenation
MLT continued its portfolio rejuvenation strategy. The trust plans to divest about S$1 billion worth of its assets, with half from China and Hong Kong. The remaining assets identified for divestment are from Malaysia and Singapore, with smaller proportions from Australia, Japan and South Korea.
The management plans to reinvest the capital into new acquisitions and focus on higher-spec modern logistics properties. MLT is eyeing accretive acquisitions in emerging markets such as Vietnam and India, as well as in developed markets like Japan.
Conclusion
MLT remains a promising investment opportunity. The projected FY2025 DPU yield of 5.7% has already accounted for the slower growth outlook, and potential asset divestments could further enhance recycling activities. However, investors should be mindful of risks such as a weak economy that could slow rental growth and lower portfolio values, as well as ongoing challenges in China.
Disclaimer: ProsperUs Manager of Content Hailey Chung doesn’t own shares of any mentioned companies.
References
CGS International | Mapletree Logistics Trust | Oct 23, 2024
The Business Times | MLT to shrink China footprint to rejuvenate portfolio
MLT 2Q FY2025 Press Release
