On 24 October 2023, Mapletree Logistics Trust (“MLT”) have announced their 2024 half year result. The financial health of MLT have remained stable, and net property income has increased when compared to the prior quarter. This stability is a welcome one as we continue to uncertainty for the next few months.
Website: Financial Statements And Related Announcement::Second Quarter And/Or Half 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 | +0.5% | +0.1% |
DPU for the first half of FY2024 have increased by 0.5% to SGD0.04539 from SGD0.04516 in the previous financial year. Worth noting that gross revenue and net property income have decreased this half of the year with the lower contribution from China and continued depreciation of CNY, JPY, KRW and AUD against SGD. Borrowing costs have increased and there was also an increase in total issued units at end of period to 4,960 million as at 30 September 2023 from 4,803 million as at 30 June 2023.
The reason DPU increase was due to inclusion of distribution of divestment gain of SGD17.2 million whereas there was only SGD3.6 million in the same period last year. Excluding these distributions, DPU would have been lower. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 96.9% | 97.1% |
Occupancy rate as at 30 September 2023 remains relatively stable at 96.9% 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 | 38.9% | 39.5% |
Gearing ratio stands at 38.9% as at 30 September 2023. The decrease in borrowings was mainly due to repayment of loans using net proceeds from the divestment of properties in Japan, Malaysia and Singapore. Although there was a decrease, the metric to me is Neutral as it is not comfortably away from the MAS limit of 50%.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.8x | 3.9x |
The interest coverage stands at 3.8 times as at 30 September 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 7 November 2023 have indicated that interest rates need to stay high for a longer period of time and higher interest rates may be needed. This was after having increased the interest rates to a range between 5.25% and 5.50% on 26 July 2023, the highest level in 22 years. There is a possibility that long-term interest rates may see an increase over the next few months.
Website: US Fed official expects further rate hike needed
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 30 September 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $5,388,000 |
| Debt Not Hedged (%) | 17.0% |
| Debt at Floating Rate Exposed | $915,960 |
| 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 | -$4,580 | -1.0% |
| + 100 bps | -$9,160 | -2.0% |
| + 150 bps | -$13,739 | -3.0% |
| + 200 bps | -$18,319 | -4.0% |
| + 250 bps | -$22,899 | -5.0% |
| + 300 bps | -$27,479 | -6.0% |
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 remains unchanged at 3.8 years as at 30 September 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 | 1.11 | 1.22 |
The Price to Book (“P/B”) ratio currently stands at 1.11. This is computed using the closing share price of SGD1.58 on 17 November 2023 and the net asset value per share of SGD1.42 as at 30 September 2023. Mapletree REITs still command a premium due to their strong reputation. However, the P/B ratio has fallen significantly over the last few months due to the decrease in share price for all REITs in the general market. The metric is Neutral.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.72% | SGD 0.090 |
| 2022 | 4.75% | SGD 0.075 |
| 2021 | 5.94% | SGD 0.094 |
| 2020 | 5.15% | SGD 0.081 |
| 2019 | 5.58% | SGD 0.088 |
| 2018 | 3.66% | SGD0.079 |
At 17 November 2023, with a closing share price of SGD1.58 and dividend payout of SGD0.090 for the full calendar year 2023, this translates to a dividend yield of 5.72%. For my benchmark, a general reasonable range would be around an average of 6.0% to 7.0% in the current environment. MLT’s expected 2023 dividend yield is below my benchmark.
Website: Reasonable Dividend Yield 2023Q4
If using dividend yield of 6.0% as a benchmark, based on the dividend of SGD0.090 there is potential for MLT to see its share price drop by another 5.1% to SGD1.50.
| Yield | Share Price | Downside |
|---|---|---|
| Current (5.72%) | 1.58 | – |
| 6.00% | 1.50 | -5.1% |
| 7.00% | 1.29 | -18.6% |
| 8.00% | 1.13 | -28.8% |
| 9.00% | 1.00 | -36.7% |
Keeping in mind that MLT trades at a discount, the yield is expected to be lower than the general market. However the dividend yield is still considered as Neutral as there may be risks of further share price decrease as interest rates are poised to increase.
Other metrics
Tenant profile
MLT has an enlarged portfolio covering multiple trade sectors. The high quality and diverse tenant base provide resilience to the MLT portfolio across challenging events. The top-10 tenants accounted for only 21.8% of MLT’s portfolio with no single tenant accounting for more than 3.9% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +0.5% | Neutral |
| Occupancy | 96.9% | Favorable |
| Gearing Ratio | 38.9% | Neutral |
| Interest Coverage | 3.8x | Unfavorable |
| Debt Maturity Profile | 3.8 years | Favorable |
| Price to Book Ratio | 1.11 | Neutral |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in MLT. The fundamentals of MLT remained relatively unchanged this quarter which is not a bad thing considering the current economic conditions.
Keep in mind that the DPU is currently supported by the divestment gain. There is a need to consider if in the absence of this for the next financial year, will the DPU remain relatively constant or if management may look to continue to divest properties. It is possible for DPU to fall 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.
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): 2024 First Quarter Result
