(+) Resilient DPU of 9.0 Scts (stable y-o-y) in FY24, core DPU of 8.3 Scts (-9.0% y-o-y) ahead of estimates
Mapletree Logistics Trust (“MLT”) reported a resilient set of results with 4QFY24 DPU of 2.211Scts (-2.5% y-o-y, -1.9% q-o-q). For FY24, MLT’s DPU including divestment gains totalled 9.003 Scts (-0.1% y-o-y), ahead of our full year estimate of 8.6 Scts. While distributing divestment gains has always been MLT’s policy, FY24’s DPU was enhanced by an exceptional S$41m in divestment gains, translating to a DPU boost of 0.83 Scts worth compared to 0.13 Scts a year ago. The overall underlying performance remained stable with overall portfolio occupancy rates staying resilient at 96.0%, and positive portfolio rental reversionary rates of 2.9% driving a 0.4% and 0.0% rise in gross revenues and net property income to S$733.9m and S$634.9m respectively. The steady performance was given a boost by contribution from acquisitions, offset by divestments and the depreciation of the CNY, JPY, HKD, MYR, AUD against the SGD. On a constant currency basis, gross revenues and net property income would have risen by 4.1% and 3.6% respectively.

(-) Dip in net asset values. Net asset values declined to S$1.38/unit, mainly due to S$470.9m in currency translation losses for properties held in jurisdictions whose currency had depreciated against the SGD. Excluding currency impact, overall portfolio values remained fairly stable. We observed that on a local currency basis, most countries saw an improvement in asset values despite a general expansion (25 -75 bps ppt) in cap rates, with the exception of Japan (cap rate compression of up to 40bps) while China properties saw a 1.1% decline due to lower cashflows. 

Our view
(+) Financial metrics stable despite rise in global interest rates
The MAS leverage ratio remained stable at 38.9% (+ 2.1% ppts y-o-y), with the (debt + perpetual) / asset ratio increasing slightly to 43.3%, as the manager took on more debt for acquisitions. We note that these levels are well within management’s comfortable levels. Overall interest cost was steady at 2.7% (+0.2% ppt q-o-q, flat y-o-y). Through active management of the REIT’s expiry profile and debt currency mix, and despite the overall increase in interest rates, MLT was able to keep its overall interest burden within control. Looking ahead, management expects the overall cost of debt to still rise, as hedges roll off during 2024 but still stay within 3.0% (within our projections).

As such, T12M EBITDA adjusted interest coverage ratio (“ICR”) including perpetual interest remains stable and comfortable at 3.0x (vs 3.2x a quarter ago). Looking ahead, given the rise in interest rates, EBITDA ICR ratio is likely to remain at current levels.

(+) China operations in focus; overall portfolio metrics remain positive
We note a slight 0.1% q-o-q improvement in occupancy level to 96.0%, which came on the back of backfilling of space (in Malaysia, 98.6%, +2.1% ppt q-o-q) with most other markets delivering stable occupancy rates north of c.96%. We are keeping close tabs on the REIT’s China properties (c.20% of revenues) where occupancy rate has held up well during the past few quarters at c.93.2%. The manager expects the level to remain in the foreseeable future. We understand that the operating environment remains cautious, especially in Tier 2 cities in China (c.9%-10% of revenues) where the oversupply situation is a key overhang. The manager is seeing rental declines to the tune of 10%-15%, which will likely continue for the next 6 – 12 months. That said, we remain comforted that the REIT’s China warehouses in Tier 1 cities are seeing strong occupancy rates of c.95% with stable reversions. 

While overall rental reversions remained at a positive 2.9% (vs 3.8% in 3QFY24), we note that China’s performance is the one to monitor at -10.0%, offset by robust uplifts in Singapore  (+11%), while other cities remained positive – Malaysia (+3.1%), Korea (+2.6%), Vietnam (+4.0%). Looking ahead, the manager is still seeing positive rental reversionary growth but is guiding for lower as tenants and businesses are taking a more cautious approach towards expansionary strategies.

(+) Active asset and capital management the key to success
MLT continues to diversify its earnings base through active acquisitions (c.S$1,100m in deals in Japan, Korea, Australia and most recently a portfolio of logistics properties within ASEAN). In addition, there is close to another c.S$300m in active asset redevelopment stage in Singapore and Malaysia to drive upside to DPUs and NAVs over time. To fund these initiatives, MLT will look to recycle capital through divestments of assets close to their asset life cycle. The target is to divest S$200m – S$500m worth of assets in the FY25. We note that the REIT has achieved a divestment premium of c.12% historically and aims to maintain this level for future divestments.

Cutting estimates
Our estimates are revised downwards to reflect overall mark-to-market currency exchange rates against the SGD and higher overall interest rates of c.3.0% in FY25F (vs 2.9% previously). We have also assumed that undistributed fair value gains of c.S$10m would be paid out in FY25F. This brings our revised FY25-26F DPU to 8.3 – 8.4 Scts, implying a yield of >6.0%.

Affected by external factors, BUY, TP S$1.75
MLT’s share price has dropped by c. 21% since the start of 2024 (vs the c.11% decline in FSTREI index) due to rising concerns on MLT’s China (c.20% of revenues) and Hong Kong (c.16% of revenues) operations given the more subdued operating environment. These concerns are not new but are largely unfounded, especially for Hong Kong where overall operating metrics remain resilient. That said, MLT has exposure to developed markets in Singapore, Japan, Australia and Asia Pacific (ex China), where the outlook remains robust with the sector currently favours landlords. MLT is trading at attractive valuations at less than 1.0x P/B, and FY25F yield of c.6.2%. In the event of a global slowdown, we expect increased positioning into sectors that can navigate economic downshifts and MLT is well placed to deliver attractive total returns at the current level. BUY, TP S$1.75 (vs S$1.88 prev) on revised DPU estimates. 

Key items to watch

1. Turnaround at its China operations, (ii) acquisitions, (iii) overall portfolio interest costs.

Source of all data: Company, DBS Bank Ltd