On 1 May 2023, Mapletree Logistics Trust (“MLT”) have announced their 2023 full year result despite it being a public holiday. Overall the results for full financial year have shown improvements, and there are indicators that the dividend may increase in 2023 as compared to 2022.
Worth noting in the final quarter, DPU remained relatively flat compared to the previous quarter and revenue actually saw a decrease due to depreciation of foreign currencies against SGD. This might continue to be the trend over the next few months given Singapore’s more active management of exchange rate risks. There is a chance that DPU may be affected for the next few quarters.
Website: Financial Statements And Related Announcement::Full Yearly Results
Photo source: https://blog.investingnote.com/mapletree-logistics-trust/
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”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | +2.5% | +3.4% |
DPU for the 12 months of FY2023 have increased by 2.5% to SGD0.09011 from SGD0.08787 in the previous financial year. This was despite an increase in total issued units at end of period from 4,783 million as at 31 March 2022 to 4,816 million as at 31 March 2023.
Worth noting however that the revenue for the final quarter have saw a decrease from the previous quarter, mainly due to depreciation of foreign currencies against SGD. This may be a trend that continues over the next few months as the Singapore manages their exchange range policies more actively than other countries.
For now, this metric is Favorable as the DPU growth is organic. Will reassess the next quarter if there is a further decrease in revenue and DPU.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 97.0% | 96.9% |
Occupancy rate as at 31 March 2023 remains relatively stable at 97.0% which is Favorable as it is above my expected healthy occupancy rate of 95%. MLT have been able to fully utilize their assets.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 36.8% | 37.4% |
Gearing ratio stands at 36.8% as at 31 March 2023. The decrease in borrowings is mainly due to loan repayments and net translation gain substantially on JPY and AUD denominated loans, partly offset by additional loans drawn to fund acquisition in China, South Korea and Malaysia, and deposits placed for proposed acquisition of investment properties in Japan and Australia, capital expenditures and working capital.
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
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 4.0x | 4.3x |
The interest coverage stands at 4.0 times as at 31 March 2023. The metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times. This however is not unexpected given the overall increase in interest rates over the last few months. The Federal Reserve on 22 March 2023 has hiked the interest rates to a range between 4.75% and 5.00%, the highest level in 15 years and are likely to keep it at these levels over the next few years.
Website: Fed hikes rates by a quarter percentage point, indicates increases are near an end
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 84% of their debt is also on fixed rates.
I have thus performed a sensitivity analysis using the information as at 31 March 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $4,877,000 |
| Debt Not Hedged (%) | 16.0% |
| Debt at Floating Rate Exposed | $780,320 |
| Distributable Income FY2023 | $454,430 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$3,902 | -0.9% |
| + 100 bps | -$7,803 | -1.7% |
| + 150 bps | -$11,705 | -2.6% |
| + 200 bps | -$15,606 | -3.4% |
| + 250 bps | -$19,508 | -4.3% |
| + 300 bps | -$23,410 | -5.2% |
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
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.8 years | 3.6 years |
Weighted average term to maturity of their debt stands at 3.8 years as at 31 March 2023. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.20 | 1.16 |
The Price to Book (“P/B”) ratio currently stands at 1.20. This is computed using the closing share price of SGD1.73 on 3 May 2023 and the net asset value per share of SGD1.44 as at 31 March 2023. 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
| Year | Yield | Total |
|---|---|---|
| 2023 | 2.73% | SGD 0.047 |
| 2022 | 4.34% | SGD 0.075 |
| 2021 | 5.43% | SGD 0.094 |
| 2020 | 4.70% | SGD 0.081 |
| 2019 | 5.09% | SGD 0.088 |
| 2018 | 4.55% | SGD0.079 |
The dividend seems to be on track to annual at SGD0.094 per share for the calendar year. This is based on annualizing the current 2 distributions of SGD0.047 as well as taking into consideration the payout as at 2021.
At 3 May 2023, with a closing share price of SGD1.73 and dividend payout of SGD0.094 for the full calendar year 2023, this translates to a dividend yield of 5.46%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment. MLT’s expected 2023 dividend yield is below my benchmark.
Website: Reasonable Dividend Yield 2023Q2
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.
| Yield | Share Price | Downside |
|---|---|---|
| Current (5.46%) | 1.73 | – |
| 5.50% | 1.71 | -1.2% |
| 6.50% | 1.45 | -16.4% |
| 7.50% | 1.25 | -27.6% |
| 8.50% | 1.11 | -36.1% |
It is worth noting that interest for long-term safe assets have stabilized and is on a downtrend. The June 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 2.81%. There is a chance for interest rates may not increase significantly moving forward, and the required dividend yield of investor may be lower than current.
Website: SBJUN23 GX23060E Bond Details
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 23.5% of MLT’s portfolio with no single tenant accounting for more than 4.4% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +2.5% | Favorable |
| Occupancy | 97.0% | Favorable |
| Gearing Ratio | 36.8% | Favorable |
| Interest Coverage | 4.0x | Unfavorable |
| Debt Maturity Profile | 3.8 years | Favorable |
| Price to Book Ratio | 1.20 | Neutral |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in MLT. There are not a lot of unexpected findings in their results, such as the increase in interest rates as well as the strengthening of Singapore Dollar against foreign currencies. The manager continues to pro-actively manage these risks, which may be an assurance to all investors.
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.
Previous Post
Website: Mapletree Logistics Trust (SGX: M44U): 2023 Third Quarter Result
