SINGAPORE (Jan 24): Amid macroeconomic uncertainties and increasing cautionary behaviour, Mapletree Logistics Trust (MLT) has spent some $0.4 billion over the first three quarters of FY20 to ensure that its portfolio remains resilient through the acquisition of seven logistics properties in Malaysia, Vietnam and China.
With 143 properties currently, MLT’s diversified portfolio spans across eight Asian geographies, namely Singapore, Hong Kong, China, Australia, Malaysia, South Korea, Japan and Vietnam.
On Jan 20, MLT reported what analysts term a “stable” set of results. It posted a distribution per unit (DPU) of 2.044 cents for 3Q19/20 ended December, a 2.1% increase from the previous year. The increase came on the back of higher contributions from existing properties, but was partly offset by the absence of contribution from five properties in Japan divested in 1Q19/20.
Amount distributable to unitholders increased 6.5% to $76.6 million, while revenue for the quarter inched up by a marginal 0.3% to $121.1 million.
See: Mapletree Logistics Trust posts 2.1% rise in 3Q DPU to 2.044 cents on higher revenue
In its outlook statement, MLT’s manager has chosen to tread with caution for the near term at least, citing how tenants are more cautious given the uncertainty with most being careful on expansionary plans, while others may look to further consolidate their operations to increase cost efficiencies.
But analysts have their own views on MLT’s ability to thrive despite the macroeconomic challenges that loom.
Resilient operating metrics
In a Tuesday report, CGS-CIMB analyst Lock Mun Yee notes that portfolio occupancy improved to 97.7% in 3Q20 from 97.5% in the previous quarter on the back of higher occupancy in Singapore. This was, however, partially offset by lower occupancies in South Korea and China.
Analysts note that MLT has enjoyed the effects of upticks in both portfolio occupancies and rental reversions in its latest set of results.
“The portfolio also achieved an average rental reversion of +1.2% mainly from Hong Kong, Vietnam and Malaysia,” says Lock. “While China experienced a rental reversion of +1.1%, we note that assets in Tier 1 cities performed better than Tier 2 cities as a result of tighter supply.”
Looking ahead, Maybank Kim Eng analyst Chua Su Tye opines that further improvements are in the pipeline for MLT.
“We see rising revenue and net property income (NPI) contribution from its recent acquisitions in Malaysia, Vietnam and China which were completed during the quarter,” shares Chua in a report on Jan 21.
“MLT remains optimistic on the logistics market in Malaysia, Vietnam, and China’s first-tier cities,” adds Chua.
Management strategies
Moving into 4Q19/20, analysts are quick to note that MLT’s management has a fairly cautious approach, yet remain optimistic on the REIT’s ability to thrive on the back of its gearing levels and capital-recycling efforts.
Maybank’s Chua notes that MLT’s management had adopted a cautious tone in view of macroeconomic headwinds. “ We see a pick-up in rents only from late 2020, on easing supply,” observes Chua.
Chua adds that the MLT’s capital-recycling efforts could bode well for the group in the near term, especially with the management setting aside some $500 million for asset divestment opportunities.
“Strong liquidity and demand especially for its China assets resulted in a divestment of its Waigaoqiao Logistics Park for $64.0 million at a 2.4% cap rate,” notes Chua.
Similarly, DBS Group Research’s lead analyst Derek Tan believes that the management’s recent strategies will enable the REIT to achieve “resilience in returns to unitholders”.
“While this may have an impact in the medium term, we believe that the active asset management strategy undertaken by the manager to diversify its portfolio and pre-empt such vacancies,” says Tan.
“Management has strong execution capabilities and its portfolio capital recycling strategy has also resulted in net divestment gains being distributed to unitholders,” add analysts from OCBC Investment Research.
Maybank’s Chua notes that certain risks for MLT in the near term include a reduced demand for logistics space which could result in lower occupancy and rental rates and the termination of long-term leases contributing to weaker portfolio tenant retention rates.
In addition, Chua also points out that a sharper-than-expected rise in interest rates could increase the cost of debt and negatively impact MLT’s earnings as a result.
Moving forward, analysts remain divided on their views of MLT. DBS has a “buy” call on MLT with a target price of $1.90, citing a “temporary” earnings drag which is likely to diminish in 4Q20 as its new properties start contributing.
“We believe that the anticipation of continued acquisition momentum to result in 2020 to drive share price higher,” says DBS’s Tan.
Maybank and CGS-CIMB opt for a more conservative approach, and are keeping their “hold” calls on MLT with target prices of $1.75 and $1.56 respectively.
OCBC has a “sell” call on MLT with a fair value of $1.59. Although the brokerage expects more distributions to be paid out from the REIT’s divestment gains, it observes that positives are “more than priced in” and that valuations remain “lofty” at the moment.
As at 12.51pm units in Mapletree Logistics Trust are trading one cent higher, or 0.6% up, at $1.83. This translates to a price-to-earnings (P/E) ratio of 24.4 times and a distribution yield of 4.4% for FY20F according to DBS valuations.
