On 25 July 2023, Mapletree Logistics Trust (“MLT”) have announced their 2024 first quarter result. Overall the results have definitely shown that the financial health of MLT have deteriorated this quarter, with profit having decreased by 6.6% on the basis of a lower revenue and higher borrowing costs. They are able to sustain their DPU using one-off gains which may not necessary be seen in the next quarter. I am expecting the dividend payout in 2023Q4 to decrease further.
Gearing have increased as they drawdown to fund new acquisitions. Personally I do not mind as although interest rates are currently high, borrowings can be refinanced over the next few years. Cheaper property valuations and therefore purchase prices may not be available for too long, especially once interest rates start to fall. This action however will also mean there are likely short-term pain in terms of DPU. Investors will need to take note that the dividend may fall further and share price will also decrease accordingly.
Website: Financial Statements And Related Announcement::First Quarter 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 | +0.1% | +2.5% |
DPU for the first quarter of FY2024 have increased by 0.1% to SGD0.02271 from SGD0.02268 in the previous financial year.
Keep in mind that the overall profit have decreased this quarter. Revenue have decreased due to weaker exchange rates, in particular the depreciation of CNY, JPY, KRW and AUD against SGD and borrowing costs have increased incremental borrowings to fund acquisitions and higher average interest rate on account of the rising interest rate environment. Furthermore there was also an increase in total issued units at end of period to 4,943 million as at 30 June 2023 from 4,816 million as at 31 March 2023.
The reason for DPU to remain unchanged is because in 2023Q1, there is a partial distribution of gain from the divestment of 3 Changi South Lane and full distribution of written back provision of capital gain tax for 7 Tai Seng Drive, 4 Toh Tuck Link and 531 Bukit Batok Street 23.
Excluding these distributions, DPU would have been lower. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 97.1% | 97.0% |
Occupancy rate as at 30 June 2023 remains relatively stable at 97.1% 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 | 39.5% | 36.8% |
Gearing ratio stands at 39.5% as at 30 June 2023. The increase in borrowings is mainly due to additional loans drawn to fund the acquisitions in Japan, South Korea and Australia.
This to me is Neutral. Although it is still a distance away from the MAS limit of 50% to fund new acquisitions through debt, it has increased significantly this quarter.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.9x | 4.0x |
The interest coverage stands at 3.9 times as at 30 June 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 26 July 2023 has once again hiked the interest rates by a quarter percentage point to a range between 5.00% and 5.25%, the highest level in 22 years and are likely to keep it at these levels over the next few years.
Website: Fed approves hike that takes interest rates to highest level in more than 22 years
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 June 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $5,561,000 |
| Debt Not Hedged (%) | 18.0% |
| Debt at Floating Rate Exposed | $1,000,980 |
| 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 | -$5,005 | -1.1% |
| + 100 bps | -$10,010 | -2.2% |
| + 150 bps | -$15,015 | -3.3% |
| + 200 bps | -$20,020 | -4.4% |
| + 250 bps | -$25,025 | -5.5% |
| + 300 bps | -$30,029 | -6.6% |
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 | 3.8 years |
Weighted average term to maturity of their debt stands at 3.8 years as at 30 June 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 | 1.22 | 1.20 |
The Price to Book (“P/B”) ratio currently stands at 1.22. This is computed using the closing share price of SGD1.73 on 28 July 2023 and the net asset value per share of SGD1.42 as at 30 June 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 | 3.91% | SGD 0.068 |
| 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 for this quarter amounted to SGD0.0204, which is lower than what was paid out in the previous quarters. Assuming the dividend payout in 2023Q4 to be similar, MLT is on track to annual at SGD0.088 per share for the calendar year.
At 28 July 2023, with a closing share price of SGD1.73 and expected dividend payout of SGD0.088 for the full calendar year 2023, this translates to a dividend yield of 5.09%. 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 2023Q3
If using dividend yield of 5.5% as a benchmark for a more premium REIT, based on the dividend of SGD0.088 there is potential for MLT to see its share price drop by another 7.5% to SGD1.60.
| Yield | Share Price | Downside |
|---|---|---|
| Current (5.09%) | 1.73 | – |
| 5.50% | 1.60 | -7.5% |
| 6.50% | 1.35 | -21.7% |
| 7.50% | 1.17 | -32.2% |
| 8.50% | 1.04 | -40.2% |
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. The top-10 tenants accounted for only 22.6% of MLT’s portfolio with no single tenant accounting for more than 4.3% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +0.1% | Unfavorable |
| Occupancy | 97.1% | Favorable |
| Gearing Ratio | 39.5% | Neutral |
| Interest Coverage | 3.9x | Unfavorable |
| Debt Maturity Profile | 3.8 years | Favorable |
| Price to Book Ratio | 1.22 | Neutral |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in MLT. Nonetheless it is not unexpected given the higher interest rate impacts 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.
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Website: Mapletree Logistics Trust (SGX: M44U): 2023 Full Year Result
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