On 24 January 2024, Mapletree Logistics Trust (“MLT”) have announced their 2024 third quarter result. There is a slight decrease in gross revenue when comparing quarter on quarter and therefore a lowered net property income. The other fundamentals of MLT however have remained relatively stable which is a good indicator that they will be able to ride out the uncertainties over the next few quarters.
I have adjusted my expectations for DPU and interest coverage for this quarter. The current high interest rate environment will naturally have REITs seeing higher financing costs and cause interest coverage ratio to decrease.
Website: Financial Statements And Related Announcement::Third 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 | +0.7% | +0.5% |
DPU for the 9 months ending 31 December 2023 have increased by 0.7% to SGD0.06792 from SGD0.06743 for the same period in the previous financial year. Worth noting that although gross revenue has remained relatively unchanged, expenses have increased resulting in a decrease in net property income. The reason DPU increase was due to inclusion of distribution of divestment gain of SGD17.2 million. Excluding these distributions, DPU would have been lower. This metric is Neutral.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 95.9% | 96.9% |
Occupancy rate as at 31 December 2023 decreased to 95.9%. This 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 | 38.8% | 38.9% |
Gearing ratio remained relatively unchanged at 38.8% as at 31 December 2023. 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 | 3.2x | 3.2x |
I have adjusted to use the adjusted interest cover ratio which includes the trailing 12 months perpetual securities distributions. The reason is because although Perpetual Securities holders are a form of equity, there is a higher priority to pay them their interest due before it is distributed to the common shareholders. Thus we have to ensure there is sufficient interest coverage to satisfy their needs as well.
The adjusted interest coverage stands at 3.2 times as at 31 December 2023. The metric is Favorable as it is not unexpected due to the high interest rate environment and is above my preference of 3.0 times. This metric is likely to improve as the Federal Reserve on 13 December 2023 held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond. The interest rates are therefore maintained at a range between 5.25% and 5.50%, which was increased on 26 July 2023, the highest level in 22 years.
Website: Fed holds rates steady, indicates three cuts coming in 2024
Should the interest rate increase further, MLT may be subjected to significant change in their cost of debt. 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 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $5,325,000 |
| Debt Not Hedged (%) | 17.0% |
| Debt at Floating Rate Exposed | $905,250 |
| 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 | -$4,526 | -1.0% |
| + 100 bps | -$9,053 | -2.0% |
| + 150 bps | -$13,579 | -3.0% |
| + 200 bps | -$18,105 | -4.0% |
| + 250 bps | -$22,631 | -5.0% |
| + 300 bps | -$27,158 | -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 | 3.7 years | 3.8 years |
Weighted average term to maturity of their debt remains unchanged at 3.7 years as at 31 December 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 | 1.11 |
The Price to Book (“P/B”) ratio currently stands at 1.11. This is computed using the closing share price of SGD1.56 on 25 January 2024 and the net asset value per share of SGD1.56 as at 31 December 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 |
|---|---|---|
| 2024 | 1.44% | SGD 0.023 |
| 2023 | 5.79% | SGD 0.090 |
| 2022 | 4.81% | SGD 0.075 |
| 2021 | 6.02% | SGD 0.094 |
| 2020 | 5.21% | SGD 0.081 |
| 2019 | 5.65% | SGD 0.088 |
At 25 January 2024, with a closing share price of SGD1.56 and dividend payout of SGD0.090 for the full calendar year 2023, this translates to a dividend yield of 5.79%. For my benchmark, a general reasonable range would be around an average of 5.25% to 6.25% in the current environment. MLT’s dividend yield is within my benchmark. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q1
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 22.1% of MLT’s portfolio with no single tenant accounting for more than 4.0% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +0.7% | Neutral |
| Occupancy | 95.9% | Favorable |
| Gearing Ratio | 38.8% | Neutral |
| Interest Coverage | 3.2x | Favorable |
| Debt Maturity Profile | 3.7 years | Favorable |
| Price to Book Ratio | 1.11 | Neutral |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in MLT. Having stable fundamentals in this uncertain environment is something that can provide investors a peace of mind. Furthermore as interest rates are forecasted to potentially decrease in 2024, it may help to build resilience and improve DPU over the next few years. In the meantime, do keep in mind that the DPU is currently supported by the divestment gain.
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 Half Year Result
