Mapletree Logistics Trust - UOB Kay Hian 2022-10-31: 2QFY23 Resilient Growth Despite Intensifying Economic Headwinds


Mapletree Logistics Trust - 2QFY23 Resilient Growth Despite Intensifying Economic Headwinds

  • DPU growth of 3.5% y-o-y for 2QFY23 was in line with expectations. Mapletree Logistics Trust achieved positive rental reversion of 3.5%, while portfolio occupancy was stable at 96.4%. Leasing demand for logistics space remains resilient, especially for essential services.
  • China faces potential slowdown over the next two quarters but rental reversion is expected to remain positive.
  • Mapletree Logistics Trust provides attractive FY23 distribution yield of 5.9% (vs Frasers Logistics & Commercial Trust (SGX:BUOU): 6.4%). Maintain BUY. Target price: S$1.87.

Mapletree Logistics Trust (MLT)'s 2QFY23 Results

  • Mapletree Logistics Trust (SGX:M44U) reported DPU of 2.248 cents for 2QFY23 (+3.5% y-o-y), which is in line with our expectations.
  • Growth from existing properties and accretive acquisitions. Revenue and NPI grew 11.4% and 10.8% y-o-y respectively due to growth from existing properties and accretive acquisitions completed in 1QFY23 and FY22, moderated by depreciation of JPY (-18.7% y-o-y) and KRW (-12.6% y-o-y) against the S$. DPU would have increased by 5.7% if exchange rates were stable. Mapletree Logistics Trust received income support of S$1.0m during the quarter.
  • Mapletree Logistics Trust achieved positive rental reversion of 3.5% in 2QFY23 (Australia: 8.1%, Singapore: +4.3%, Vietnam: +4.2%, Japan: +4.1%, Malaysia: +3.1%, South Korea: +2.6%, Hong Kong: +3.2% and China: +2.5%). Mapletree Logistics Trust continues to focus on ensuring tenant retention and work closely with tenants to support their operations. Tenant retention ratio was healthy at 89%.
  • Portfolio occupancy eased marginally by 0.4ppt q-o-q to 96.4% due to lower occupancies in Singapore (-0.9ppt q-o-q to 97.4%), China (-0.5ppt q-o-q to 92.4%) and Japan (-1.0ppt q-o-q to 98.2%). In Singapore, there was transitional downtime due to several conversions from single-tenanted to multi-tenanted logistics properties. The exposure to CWT (owned by HNA Group) was reduced as Mapletree Logistics Trust signs direct leases with end customers. Australia, Hong Kong, India and Vietnam maintained full occupancy of 100%.
  • Prudent capital management. Aggregate leverage was stable at 37% as of Sep 22. 82% of Mapletree Logistics Trust’s debts were hedged to fixed rates. Its average debt duration is healthy at 3.6 years. 25bp increase in base rates will reduce Mapletree Logistics Trust's distributable income by S$0.56m and DPU by 0.01 cents per quarter.
  • Higher cost of debts. Mapletree Logistics Trust's average cost of debt increased 0.2ppt q-o-q to 2.5% in 2QFY23. Management guided higher cost of debts at 2.7% in 4QFY23 and 2.8-2.9% in FY24.

Maintaining stable occupancies.

  • Mapletree Logistics Trust will focus on maintaining stable occupancies and cost containment, while actively recycling capital through selective divestments. Leasing demand remains resilient, especially for essential services, such as food & beverages, consumer staples, healthcare and electronics. Management also observed strong demand for high-value goods, such as luxury items.

Strengthening portfolio through redevelopments.

  • Mapletree Logistics Trust intends to unlock value of existing properties through repositioning, enhancement or redevelopment. We expect the company to place more emphasis on redevelopment projects in the near term:
    1. 51 Benoi Road is located in close proximity to Joo Koon MRT station along the East- West Line and FairPrice Hub retail mall. Mapletree Logistics Trust has received approval from Jurong Town Corporation (JTC) to redevelop 51 Benoi Road into a six-storey high-specs ramp-up logistics property with modern specifications. The redevelopment will provide uplift to GFA by 2.3x to 887,000sf. Management estimated yield on cost at 6.2% based on total development cost at S$197m. Existing tenants are being decanted and demolition is expected to commence in 3QFY23. The redevelopment is scheduled to complete by 1Q25.
    2. Developing the first modern ramp-up logistics property in Subang Jaya. Mapletree Logistics Trust has acquired two parcels of leasehold industrial properties at Subang Jaya, which are located next to its existing Subang 3 and 4 logistics properties, for RM65.6m (S$21.2m). It plans to amalgamate the four industrial properties into a huge 492,000sf site to be redeveloped into a six-storey ramp-up megahub with 1.4m sf of logistics space, five times their current size. Management estimated yield on cost at 7% based on total investment cost of RM536m (S$173m). The redevelopment is expected to complete by 1Q27.

China seeing slowdown over the next two quarters.

  • Leases accounting for 16.3% of portfolio NLA would expire in 2HFY23, of which about half comes from Mapletree Logistics Trust’s China portfolio. There are uncertainties created by regulatory crackdown and policy of zero tolerance to contain COVID-19. Tier 1 cities enjoy stable take-up for logistics space supported by continued growth in domestic consumption. Tier 2 cities are seeing slower take-up.
  • Management expects slowdown over the next two quarters, especially for Tier 2 cities with large incoming new supply. Rental reversion is expected to soften but remain positive. Mapletree Logistics Trust's management anticipates recovery starting mid-23.

Mapletree Logistics Trust – Earnings forecast revision and recommendation

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-10-31
SGX Stock Analyst Report BUY MAINTAIN BUY 1.87 SAME 1.94