Mapletree Logistics Trust (SGX: M44U), or MLT, is facing several headwinds.
The blue-chip logistics REIT just reported its latest set of earnings for its fiscal 2025 first quarter (1Q FY2025) ending 30 June 2024.
Higher interest rates have dented MLT’s distributable income and resulted in an 8.9% year-on-year decline in distribution per unit (DPU) for its latest quarter.
Does the REIT see a recovery on the horizon?
A weak set of financials
For 1Q FY2025, MLT reported a 0.3% year-on-year dip in gross revenue to S$181.7 million.
Net property income slipped by 0.9% year on year to S$156.7 million.
Borrowing costs, however, spiked by 9.4% year on year to S$38.5 million.
As a result, distributable income fell by 7.4% year on year to S$103.7 million, resulting in the REIT’s DPU declining by 8.9% year on year to S$0.02068.
Aside from higher finance costs, the REIT manager mentioned that gross revenue was negatively impacted by weakness in China.
Rental reversions in the Middle Kingdom continued to stay negative for 1Q FY2025, coming in at -11.3%.
This was slightly worse than the -10% recorded in the previous quarter (i.e. 4Q FY2024).
In addition, the depreciation of the Japanese Yen and Chinese Yuan also impacted distributable income, though the weak performance was offset by contributions from new acquisitions during the previous fiscal year and 1Q FY2025.
Solid operating metrics
Despite the lower DPU, MLT managed to report solid portfolio operating metrics.
Its overall portfolio occupancy stood at 95.7% as of 30 June 2024, dipping by just 0.3 percentage points from the previous quarter’s 96%.
China is the weakest of all the countries, registering an occupancy rate of 93.1%.
The portfolio registered a positive rental reversion of 2.6% despite the negative reversions for China.
If China were excluded, the portfolio rental reversion would be a positive 4.6%.
The weighted average lease expiry (WALE) for MLT’s portfolio stayed constant at 2.9 years.
Healthy debt metrics
MLT took on additional debt for 1Q FY2025 to fund acquisitions in both Malaysia and Vietnam.
As a result, its aggregate leverage rose slightly from 38.9% as of FY2024 to 39.6% as of 1Q FY2025.
The good news is that its weighted average annualised cost of debt stayed constant at 2.7%.
The interest cover ratio was also healthy at 3.6 times, dipping just slightly from 3.7 times three months ago.
The logistics REIT maintained a well-spread-out debt maturity profile with no more than 21% of its total loans coming due in any fiscal year.
For FY2025, just 3% of its loans are due for refinancing.
Because of weaker regional currencies, MLT has hedged its foreign exchange exposure to Singapore dollars for 78% of its distributable amount.
In addition, 83% of its loans are pegged to fixed rates, thus helping to keep a lid on rising finance costs.
Active capital recycling
MLT’s manager is active in recycling capital and unlocking value for unitholders.
For starters, the REIT completed the acquisition of three properties in Malaysia and Vietnam in 1Q FY2025 to capture growing consumption demand in these countries.
Let’s not forget that MLT is also working on two concurrent redevelopment projects that should contribute positively to revenue and net property income once completed.
The first is the amalgamation of two land parcels in Malaysia for redevelopment into a mega, modern ramp-up facility with 1.4 million square feet of gross floor area (GFA) post-redevelopment.
This project will cost around S$173 million and should be completed by the first half of 2028 (1H 2028).
Another redevelopment project is ongoing at 51 Benoi Road in Singapore.
Costing S$205 million, this project should increase the GFA of the property from 391,000 square feet to 887,000 square feet.
It is slated for completion in 1H 2025.
Meanwhile, the REIT manager also announced or completed selective divestments for four properties with older specifications and limited redevelopment potential during the quarter.
These properties were all sold at prices above their valuations with the proceeds to be reinvested in modern assets with better growth prospects.
Get Smart: No respite yet
The REIT manager is doing a great job in recycling capital for unitholders by selling older properties and reinvesting into newer ones.
However, MLT warned that China remains challenging with negative rental reversions looking to persist.
Higher borrowing costs along with weaker regional currencies will continue to exert pressure on the REIT’s financial performance for FY2025.
Hence, it seems there is no respite yet for the REIT from these headwinds.
Investors will need patience for the REIT to manage these challenges to eventually emerge stronger.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
