Staying resilient despite uncertainties
- 1Q DPU of 2.27 cts in line with expectations at 25.8% of our FY23F forecast.
- Achieved rental reversion of +3.4% in 1Q despite a slight dip in occupancy.
- Reiterate Add with a slightly lower DDM-based TP of S$2.05.
1QFY3/23 results highlights
MLT reported a 14.6%/13.2% yoy rise in 1QFY3/23 gross revenue/NPI to
S$187.7m/S$163.2m, due to higher revenue from existing properties and contributions
from accretive acquisitions. NPI margin fell yoy but improved to 87% due to lower property
tax and repair and maintenance expense. 1Q distributable income came in at S$108.6m,
+17.2% yoy, translating to a DPU of 2.27 Scts (+5% yoy). As at end-1Q, MLT has hedged
80% of its debt into fixed rates and hedged 73% of its distributable income in the next 12
months. In terms of sensitivity, every 25bp hike in interest rates would translate to a 0.01
Scts shift in DPU.
Stronger rental reversions qoq
MLT’s portfolio occupancy dipped slightly qoq to 96.8% as at end-1Q, dragged down by lower occupancies in Singapore, South Korea and China, partly offset by an improvement in take-up in Japan and HK SAR. There was stronger positive rental reversion of 3.4% in 1Q (vs +2.9% in 4Q), with the most uplift from Singapore, India, Vietnam, Japan and Malaysia. About 24.2% of its rental income is up for renewal in 9MFY23F, the bulk coming from China, Singapore and South Korea. Management remains cautiously optimistic on reversions as leasing sentiment in China improved towards the end of 2QCY22, particularly in Tier-1 cities, albeit amid moderate take-up as tenants remain cautious about capacity expansion. Overall, leasing demand for warehouse space is expected to stay resilient, supported by domestic consumption, e-commerce and inventory stockpiling.
More selective on inorganic growth opportunities
MLT continues to explore inorganic growth and sees opportunities in Australia, Japan and South Korea. Its gearing stood at 37.2% as at end-1Q, translating to a potential debt headroom of S$700m (based on a 50% guideline ceiling) and it plans to recycle S$300mworth of assets in Singapore, South Korea and Malaysia. That said, with a slightly higher cost of capital amid a rising interest rate environment, it is more selective on new acquisitions, as it expects cap rates to soften slightly, particularly for the lower quality/older and less well-located properties.
Reiterate Add rating
Following its results, we leave our FY23-25F DPU estimates unchanged but tweak our DDM-based TP down to S$2.05 on the back of a slightly higher cost of equity of 7.64% (vs. 7.61% previously). Our current forecasts have not baked in any pre-emptive new acquisitions or divestments as guided by management. Potential re-rating catalysts: more accretive acquisitions. Downside risk: slow macro outlook that would hamper rental growth outlook.