<Alert!> Mapletree Logistics Trust: On track for a convincing beat!
- 9MFY24 DPU of 6.79 Scts (+0.7%), remains firmly ahead of expectations
- Financial position resilient; active debt management keeps overall interest obligations stable (vs rising for peers)
- Operations steady; uptick in reversions to 3.8% in 3QFY24; but China (C.20% of revenues) remain the key market to watch
- Active asset recycling strategies to keep portfolio “future proof” with gains to be shared with investors
- BUY, TP S$1.88 maintained
What has happened
(+) Resilient DPUs of 6.79 Scts (+0.7% y-o-y), on track to beat estimates. Mapletree Logistics Trust (“MLT”) reported resilient set of results with 3QFY24 DPU of 2.253 (+1.2% y-o-y, -0.7% q-o-q). For 9MFY24, MLT’s DPU including divestment gains totaled 6.792 Scts (+0.7% y-o-y), which is tracking 79% of our full year estimates of 8.6 Scts, which we believe MLT should be able to beat. The strong performance was mainly due to the REIT’s ability to keep overall cost of debt stable at 2.5% (YTD) vs our projections of c.2.9%. On a 9MFY24 basis, gross revenues and net property income remained steady (+0.2% and -0.2% y-o-y respectively) at S$552.9m and S$479.6m respectively, in line with expectations. The steady performance was driven from higher rentals achieved at its Singapore and Hong Kong properties, supported by acquisitions completed in 1QFY24, offset lower contributions from China (lower occupancy rates and rentals) and the depreciation of the CNY, JPY, HKD, MYR, AUD against the SGD.
| Key Financial Metrics | 3QFY24 | 3QFY23 | 2QFY24 | % y-o-y | % q-o-q | 9M24 | 9M23 | %y-o-y |
| Gross revenue (S$m) | 184.0 | 180.2 | 186.7 | 2.1% | -1.4% | 552.9 | 551.8 | 0% |
| NPI (S$m) | 159.5 | 157.2 | 162.0 | 1.5% | -1.5% | 479.6 | 480.4 | 0% |
| Distributable Income (S$m) | 112.2 | 107.1 | 112.5 | 4.8% | -0.2% | 336.7 | 323.8 | 4% |
| Available DPU (Scts) | 2.253 | 2.23 | 2.268 | 1.2% | -0.7% | 6.792 | 6.743 | 1% |
| NAV/share (S$) | 1.4 | 1.32 | 1.32 | 6.1% | 6.1% | 1.4 | 1.32 | 6% |
Source: Company
Our view
(+) Financial metrics stable despite rise in global rates.
MAS leverage ratio remained stable at 38.8% (flat q-o-q), with (debt + perpetual) / asset ratio stable at 43.1%, as the manager have partially repaid borrowings form divestment proceeds, offsetting the slight asset values changes due to currency changes. We note that these ranges are well within management comfortable levels. Overall interest cost remained resilient at 2.5% (flat q-o-q, +0.2% y-o-y) despite the overall increase in interest rates was mainly due to the active management of their debt currency exposures. Looking ahead, management expects that overall cost of debt to still rise, as hedges roll off through 2024 but still remain within 3.0% (within our projections). As such, interest coverage ratio (“ICR”) remains stable and comfortable at 3.7x (vs 3.8x) and adjusted ICR ratio (accounting for perpetual securities distributions) is at c.3.2x, flat q-o-q.
(+) Operating metrics weakened due to China negative reversions but are priced-in.
We note a slight 1.0% q-o-q dip in occupancy levels to 95.9%, which we believe to be transitory with vacated space either to be backfilled (in Malaysia) and for properties in Singapore and Hong Kong, were slated for divestments. We note that China overall occupancy levels remain the lowest across markets at c.93.1% (flat q-o-q) due to the still subdued operating conditions, especially in Tier 2 cities in China (c.9%-10% of revenues) where the current oversupply situation remains a key overhang. While overall rental reversions improved q-o-q to 3.8% in the quarter (vs 0.2% a quarter before), we note that China’s performance remains the one to watch at -9.2% (where tier 1 cities remain positive at +0.2% y-o-y, while Tier 2 cities was a negative c.-17%) to +0.2% mainly dragged down by China negative reversions of -8.6% (Tier 2 cities) offset by robust uplifts in Hong Kong (+16%) and Malaysia (+3.2%). Overall rental reversions, ex China, remains robust at +9.1% (vs 3% – 4% over past few quarters), which highlights the REIT’s robust operating outlook within the Asia Pacific region.
(+) Active asset and capital management the key to success
MLT continues to diversify its earnings base through active acquisitions (c.S$900m in deals over Japan, Korea and Australia) with close to c.S$300m in active asset redevelopment to drive upside to DPUs and NAVs over time. The REIT has also divested/divesting close to c.S$200m worth of assets year to date (“YTD”) with an average premium of c.12%, representing a potential sharing of gains of close to c.S$22m which we believe will be distributed over time.
Compelling value, BUY, TP S$1.88
MLT share price dipped by c.-5% since the start of 2024 (vs FSTREI index dip of c.3.0%) which we attribute to investors keeping a close eye on the REIT’s exposure in China (c.20% of revenues) which is seeing near term operational challenges. That said, we believe that its diversified exposure where its developed markets exposures in SG, JP, AU and Asia Pacific (ex China) outlook remain robust with the logistics markets remaining in a landlord’s market. Overall, we remain attracted by its valuations at c.1.1x P/B and a FY24F-25F yield of c.5.3%. In the event of a global slowdown, we expect increased positioning into sectors that can weather through economic downshifts and MLT remains well placed to deliver attractive total returns at current levels. BUY, TP S$1.88.
Key items to watch
- Turnaround in its China operations, (ii) acquisitions, (iii) overall portfolio interest costs outlook.