Mapletree Logistics Trust’s (MLT) results for 3QFY2025 ended Dec 31, 2024 were in line with expectations, and Morningstar Equity Research analyst Xavier Lee saw “no major surprises”.
Still, although Lee thinks MLT units are “undervalued”, he thinks the REIT’s distribution per unit (DPU) for FY2026 will be “dragged down” by weakness in its China portfolio and higher borrowing costs from refinancing low-cost debt that is set to expire over the coming quarters.
MLT reported on Jan 21 DPU of 2.003 cents for the quarter, down 11.1% y-o-y. Net property income fell 1.5% y-o-y on the back of a 0.9% decline in revenue. The decline in revenue was driven by a lower contribution from its China portfolio, the absence of revenue from its divested properties and a stronger Singapore dollar. This was slightly offset by higher contributions from its Singapore, Australia and Hong Kong assets, as well as contributions from newly acquired assets.
In a Jan 22 note, Lee is maintaining his $1.54 target price and four-star rating on MLT against Morningstar’s five-tier scale, which means “appreciation beyond a fair risk-adjusted return is likely.”.
In 3QFY2025, MLT’s portfolio occupancy showed slight improvement, rising to 96.3% from 96.0% a quarter ago. “Notably, the trust’s China portfolio saw a 0.4 percentage point q-o-q improvement due to short-term leases from the 11.11 shopping festival. Nevertheless, rental reversion for its China portfolio remained negative at 10.2%. Excluding China, the trust’s portfolio rental reversion was positive 5.4%,” says Lee.
Australia had a “standout” performance with a positive 27.9% rental reversion due to a one-off lease renewal for a Sydney asset, notes the analyst.
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“Looking ahead, management expects the positive rental reversion for Australia to moderate and normalise, while it remains hopeful that the negative rental reversion for China will narrow over the medium term, boosted by government fiscal stimulus,” says Lee.
According to Lee, MLT expects a “modest decline” in its overall portfolio come the end of its financial year on March 31. “This is driven by the softness in its China portfolio, supply headwinds in its South Korean portfolio, and slight cap rate expansion in its Australia portfolio.”
China stabilising but still negative
Meanwhile, Citi Research analyst Brandon Lee notes that MLT’s China portfolio is stabilising, but negative rental reversion will remain.
China’s rent reversion of -10.2% in 3QFY25 is split between -3.1 and -10.5% for Tier 1 and Tier 2 cities respectively, though both tiers saw improvement q-o-q.
MLT expects the negative double-digit reversion in China to last another quarter or so, but should improve to negative high-single-digit thereafter, though positive territory will likely not be so fast, says Citi’s Lee in a Jan 22 note.
“That said, the reversion guidance is prior to the Trump administration, whose potential announcements on trade policies have resulted in uncertainty for China. While both market rent profile and occupancy (vacancy of 20%-21%) are stabilising… there remain pockets of softness and excess supply in North China, such as Beijing and Tianjin, with existing vacancies of [more than] 30%, as well as Shanghai with [more than] 20%. Of the 32% of portfolio expiries in FY2026, 47% are in China.”
Lee is keeping his “buy” call on MLT, citing “undemanding valuations”, with a $1.56 target price.
Divestments going ahead
MLT’s guidance on asset divestments remained at $200 million to $300 million a year, in-line with past two years, though the $201 million achieved so far in FY2025 fell short of target $250 million to $300 million.
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The manager has attributed this to a delay in China from a $65 million asset, where the buyer could not obtain approval for financing despite signing a memorandum of understanding and entering into exclusive negotiations with MLT.
For China, divestment price will be guided by book value, though a bottom-up approach is undertaken to determine which assets to sell, and not just the age and holding period.
MLT has remaining divestment gains of $31 million, with $11 million completed and $20 million uncompleted, but its strategy is to gradually wean off divestment gains., notes Lee.
Of potential $1 billion of assets identified for divestments, half are in China and Hong Kong, with the rest mainly in Singapore, South Korea, as well as smaller share in Japan and Australia.
Aside from asset divestments, MLT’s priorities are on filling up existing assets and asset enhancement initiatives, notes Citi. “It remains very disciplined on acquisitions, with current opportunities in Vietnam, India and Japan. The removal of a distribution reinvestment programme (DRP) is an indication that divestment proceeds are sufficient to execute acquisitions.”
Continued capital recycling
From a balance sheet perspective, MLT’s aggregate leverage ratio inched up marginally from 40.2% (as at Sept 30, 2024) to 40.3%.
82% of its total debt has been hedged, while its overall cost of borrowing was unchanged q-o-q for the fourth consecutive quarter at 2.7%.
This is expected to increase to 2.9% in FY2026, notes OCBC Investment Research. “MLT continued its capital recycling activities, with the announcement and/or completion of divestment of four properties in 3QFY2025 and another two properties to be divested post-3QFY2025.”
Following MLT’s results, OCBC’s analysts trim their DPU forecasts slightly as they factor in a larger number of units outstanding. They also raise our cost of equity assumption from 6.4% to 6.6% due to a higher risk-free rate of 2.75% and slightly higher beta.
In a Jan 22 note, OCBC analysts are keeping “buy” on MLT but with a lower target price of $1.61 from $1.68 previously.
CGS International analyst Lock Mun Yee is even more optimistic, keeping her “add” call and $1.73 target price unchanged in a Jan 22 note. “We maintain our FY2025-2027 DPU estimates and target price of $1.73 (cost of equity 7.83%). We have not baked in any pre-emptive new acquisitions or divestments into our estimates. We believe our FY2025 DPU yield of 6.3% has largely factored in the slower growth outlook, while asset divestments could further spur recycling activities.”
As at 11.15am, units in MLT are trading 1 cent lower, or 0.8% down, at $1.26.
