On 25 October 2022, Mapletree Logistics Trust (“MLT”) have announced their 2023 half year result. Overall the results are decent for sure. However with the surprising low dividend yield in this higher interest rate environment, it seems like there is potential for share price to drift lower over the next few months. Have analyzed the results below.
Website: Financial Statements and Related Announcement::Second Quarter And/Or Half Yearly Results
Background
MLT is Singapore’s first Asia-focused logistics real estate investment trust. Listed on the Singapore Exchange Securities Trading Limited in 2005, MLT invests in a diversified portfolio of quality, well-located, income producing logistics real estate in Singapore, Hong Kong SAR, Japan, China, Australia, South Korea, Malaysia, Vietnam and India.
The Manager, Mapletree Logistics Trust Management Ltd., is committed to providing Unitholders with competitive total returns through the following strategies:
- optimising organic growth and hence, property yield from the existing portfolio;
- making yield accretive acquisitions of good quality logistics properties; and
- managing capital to maintain MLT’s strong balance sheet and provide financial flexibility for growth.
Key Metrics
Distribution Per Unit (“DPU”)
Based on the announcement on 25 October 2022, it was noted that DPU for the first half of FY2023 have increased by 3.5% to SGD0.0225 from SGD0.0217 in the first half of FY2022. This was despite an increase in total issued units at end of period from 4,297 million as at 30 September 2021 to 4,803 million as at 30 September 2022.
This metric is Favorable as the DPU growth is organic.
Occupancy
Occupancy rate as at 30 September 2022 stands at 96.4%. This is Favorable as it is above my expected healthy occupancy rate of 95% and MLT have been able to fully utilize their assets, which in turn contributed to the increase in gross revenue.
Gearing ratio
Gearing ratio stands at 37.0% as at 30 September 2022 . This to me is Favorable, as it is still a distance away from the MAS limit of 50% to fund new acquisitions through debt.
Interest coverage
The interest coverage stands at 4.6 times as at 30 September 2022. The metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times and seems to be worsening. This is a concern as interest rates continue to rise as the world looks to tackle inflation, and the Federal Reserve has hiked interest rates to 4.0% recently and is looking to hike to at least 4.75% by end of 2022.
Website: Fed to lift rates by 50 basis points, but peak policy rate may be higher
As the interest rate may potentially increase further, MLT may be subjected to significant change in their cost of debt in the near future. In their presentation they have mentioned that 82% of their debt is also on fixed rates.
I have thus performed a sensitivity analysis using the information as at 30 September 2022:
Interest rate sensitivity analysis as below:
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, MLT may experience a fall in DPU accordingly.
Debt maturity profile
Weighted average term to maturity of their debt stands at 3.6 years as at 30 September 2022. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
The Price to Book (“P/B”) ratio currently stands at 1.10. This is computed using the closing share price of SGD1.60 on 2 December 2022 and the net asset value per share of SGD1.46 as at 30 September 2022. Mapletree REITs still command a premium due to their strong reputation. However, in the current macro-economic environment, there are REITs that are trading close or below book value. There is potential that if the results become significantly more unfavorable, they may experience a larger decrease in price.
The metric is Neutral.
Dividend yield
At 2 December 2022, with a closing share price of SGD1.60 and dividend payout of SGD0.070 for the full calendar year 2022, this translates to a dividend yield of 4.36%. For my REIT’s benchmark, a general reasonable range would be around an average of 6.0% to 7.0% in the current environment. MLT’s dividend yield is way below my benchmark.
Furthermore, interest rates have been continuously increasing the last few months. This have prompted for multiple safer assets to increase their bond and interest rates to more than 3%, causing the previous yields of MLT to become unfavorable.
Website: Reasonable Dividend Yield Changes
If using dividend yield of 6% as a benchmark for a more premium REIT, based on the dividend of SGD0.070 there is potential for MLT to see its share price drop by another 27.1% to SGD1.17. Investors will thus need to be mentally prepared that the share price might further fall if interest rates for safe assets in Singapore approaches to cross 4%.
The dividend yield is Unfavorable.
Other metrics
Tenant profile
MLT has an enlarged portfolio covering multiple trade sectors. The high quality and diverse tenant base provides resilience to the MLT portfolio across challenging events, as evidenced during the ongoing COVID-19 pandemic. The top-10 tenants accounted for only 24.2% of MLT’s portfolio with no single tenant accounting for more than 6.3% during the period, providing income diversity to the portfolio.
Summary
Overall, the metrics indicate that it is favorable to invest in MLT. Despite the drop in share price over the last few months, the fundamentals of MLT did not worsen during this quarter. This suggests that the current share price is due to overall market sentiment. It is possible for the share price to recover should interest rates decrease over the next few years.
The recent market conditions present opportunities for entry as the share price continues to face downward pressure, but investors need to take note that their lower dividend yield, especially as compared to the other Mapletree REITs, may not necessary be worth the risk especially as safe assets have seen their yield rise considerably with rising interest rates.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Previous Post
Website: Mapletree Logistics Trust (SGX: M44U): Growing admist uncertainty
Dear Vires
Good one
MLT is overpriced at 1.60 indeed. Value emerges at 1.45 and below- that too more as a trading play rather than the circa 5% plus yield at that price. I will add if it gets there and sell at 1.60, ie, at current price and maybe aim to harvest a 0.5 year yield if it works out.
Best wishes
Garudadri
Dear Garudadri,
Likewise waiting to see if it will drop further. All the best!
Best Regards,
Vires