On 19 January 2023, Mapletree Logistics Trust (“MLT”) have announced their 2023 third quarter result. Overall the results are decent for sure, with signs of improvement and indicators that the dividend may increase in 2023 as compared to 2022. Have analyzed the results below.
Website: Financial Statements And Related Announcement::Third Quarter 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 19 January 2023, it was noted that DPU for the first 9 months of FY2023 have increased by 3.4% to SGD0.06743 from SGD0.06519 in the first 9 months of FY2022. This was despite an increase in total issued units at end of period from 4,672 million as at 31 December 2021 to 4,809 million as at 31 December 2022.
This metric is Favorable as the DPU growth is organic.
Occupancy
Occupancy rate as at 31 December 2022 remains relatively stable at 96.9%. 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 37.4% as at 31 December 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 4.3 times as at 31 December 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 4.25% recently, and is expecting another quarter-point increase next month bringing the rate to a range between 4.5% and 4.75%.
Website: Fed Sets Course for Milder Interest-Rate Rise in February
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 83% of their debt is also on fixed rates.
I have thus performed a sensitivity analysis using the information as at 31 December 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 31 December 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 1.16. This is computed using the closing share price of SGD1.64 on 20 January 2023 and the net asset value per share of SGD1.41 as at 31 December 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 20 January 2023, with a closing share price of SGD1.64 and dividend payout of SGD0.075 for the full calendar year 2022, this translates to a dividend yield of 4.58%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment. MLT’s 2022 dividend yield is below my benchmark.
Website: Reasonable Dividend Yield 2023Q1
If using dividend yield of 5.5% as a benchmark for a more premium REIT, based on the dividend of SGD0.075 there is potential for MLT to see its share price drop by another 16.9% to SGD1.36.
It is worth noting that the payout in calendar year 2023Q1 amount to a dividend yield of 1.36% of the current share price. If MLT is able to pay the same dividend of SGD0.022 per share for the next 3 quarters, it will translate to a annualized dividend yield of 5.44% for the calendar year 2023. With DPU on an uptrend, this is a good indicator that investors may be able to receive a higher payout in 2023.
Furthermore, although the short-term interest rates still remain high, long-term interest rates have started to fall as the market expects the world to recover over the next few year. The lowered long term yield of safe assets may indicate that the dividend yield of MLT is attractive at these levels.
The dividend yield is Neutral.
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. The top-10 tenants accounted for only 23.2% of MLT’s portfolio with no single tenant accounting for more than 4.4% during the period, providing income diversity to the portfolio.
Summary
Overall, the metrics indicate that it is favorable to invest in MLT as the fundamentals have improved during this quarter. With long-term interest rates continue to decrease, it is possible for the share price to recover over the next few years.
The current market conditions present opportunities for entry as the share price may face downward pressure. However, 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.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: Mapletree Logistics Trust (SGX: M44U): 2023 Half Year Result
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