Analysts are largely positive on Mapletree Logistics Trust (MLT) amid lower occupancy levels in South Korea, Singapore and China for the 4QFY2022 ended March. This is in light of a stable past quarter observed.
Maybank Securities analyst Chua Su Tye has kept a “buy” rating on MLT with a lowered target price of $2.25 from $2.35.
This is in spite of portfolio occupancy falling to 96.7% in 4QFY2022 from 97.8% in 3QFY2022, as higher occupancies in Japan and India were offset by occupancy dips in South Korea, China and Singapore. Occupancy in Singapore would have risen to 99% from 98.1% however, with the exclusion of 51 Benoi Road that was decanted for redevelopment.
China’s occupancy was lower at 93.1% from 95.9% with 12 assets added in January which were 91.1% occupied. The analyst notes, however, that it is set to improve and stabilise in the coming quarters.
“We think occupancies will stay resilient, but see near-term vacancy risk at its lower-tier cities, as pandemic-induced headwinds slow expansionary demand,” says Chua.
MLT reported a 16.5% and 14.9% y-o-y rise in gross revenue and net property income (NPI) to $182.9 million and $157.1 million respectively for the 4QFY2022. The better financials were attributable to better operating performance from its existing assets, contributions from new acquisitions, and lower tenant rental reliefs. MLT also recognised a $565 million revaluation gain in its portfolio, lifting its book value (BV) per unit to $1.48.
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Meanwhile, MLT’s 4QFY2022 distribution per unit (DPU) rose 5% y-o-y and 3.8% q-o-q to 2.268 cents, with higher rental income and contributions from $1.9 billion of acquisitions completed in FY2022.
“Despite in-line results at consensus, we pencil in slower growth assumptions for its China assets, and lower DPUs by 2-3%,” Chua says.
Chua notes that MLT’s DPU visibility remains high, underpinned by resilient occupancy from steady demand growth, and rental recovery in FY2023, for its well-placed logistics assets under management (AUM).
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“We see upside from divestment gains, as management ups its pace of asset recycling against tightening cap rates,” he adds.
Moreover, MLT’s leasing activity remained strong at approximately 378,000 sqm, with 88% of all expiring leases and approximately 5% of its portfolio renewed or replaced in 4QFY2022, as compared to 339,000 sqm in 3QFY2022.
Single-asset expiries over FY2023-FY2024 are low at 2.3%-5.3% while MLT’s weighted average lease expiry (WALE) was stable at 3.5 years compared to 3.6 years previously.
Portfolio rental reversion was also stronger, up 2.9% as compared to 2.5% in 3QFY2022, led by leases in India, Vietnam, South Korea and China.
“We expect reversions to stay positive across its key growth markets, and to strengthen in Singapore, Japan, and Australia,” the analyst says.
MLT’s gearing rose to 36.8% from 34.7% as of end-December 2021 with the completion of recent deals, while its AUM jumped 21% y-o-y to $13.1 billion, helped by tighter cap rates in Australia (by 75-100 bps), Hong Kong (10-60bps) and China (25-60bps).
“We estimate a $2.2 billion debt headroom at 45% limit, as MLT eyes acquisitions likely sized at $30 million to $100 million, while it looks to execute over $500 million of divestments in FY2023,” Chua says.
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Management has guided for a $197 million development cost and an indicative 6.2% yield-on-cost for its fourth Singapore redevelopment project.
CGS-CIMB Research analyst Lock Mun Yee has also kept an “add” rating on MLT with an unchanged target price of $2.10.
To her, the REIT’s performance was “resilient” as its DPU for the 4QFY2022 and FY2022 stood “slightly ahead of expectations” at 26.7% and 101.8% respectively of her full-year forecast.
The positive outlook also comes as MLT has indicated that it intends to explore inorganic growth for better returns. This will be achieved by undertaking asset enhancement opportunities in Singapore as well as overseas.
MLT estimates that its portfolio could have potential for approximately $500 million worth of redevelopment/asset enhancement opportunities. MLT is also looking at potentially more asset divestments to recycle its capital to partly fund these activities.
MLT also guided that it is less likely to be negatively impacted by rising utilities costs as utilities expenses account for less than 5% of its operating expenses (opex).
On the back of MLT’s results, Lock has upped her DPU estimates for FY2023-FY2024 by 1.42%.
“Our current forecasts have not baked in any pre-emptive new acquisitions or redevelopment/asset enhancement opportunities as guided by management,” she writes.
Upside risks to the REIT include more accretive acquisitions, while downside risks include a slow macro outlook that would hamper rental growth outlook.
As at 3.49pm, units in MLT are trading at 3 cents down and 1.68% lower at $1.76 at an FY2023 P/B ratio of 1.07x and dividend yield of 4.94% according to CGS-CIMB’s estimates.
