Analysts have mostly kept their “add” or “buy” calls on Mapletree Logistics Trust M44U (MLT) after the REIT reported a distribution per unit (DPU) of 2.027 cents for the 2QFY2025 ended Sept 30, 10.6% lower y-o-y. The DPU came largely in line with most of the analysts’ expectations. MLT’s 1HFY2025 DPU stood at 4.095 cents, 9.8% lower y-o-y.
CGS International, Citi Research and Maybank Securities have forecasted MLT’s FY2025 DPU to be at 8 cents. DBS Group Research is expecting MLT’s FY2025 DPU to be at 8.1 cents; OCBC Investment Research is estimating a full-year DPU of 8.09 cents; while UOB Kay Hian is expecting MLT to report a DPU of 8.4 cents for the year.
UOB Kay Hian analyst Jonathan Koh is the only analyst to maintain his “hold” call but with a higher target price of $1.45 from $1.44 previously.
In his report, the analyst noted that the REIT’s DPU would have fallen by a smaller 8.8% y-o-y to 1.907 cents excluding the distribution of divestment gains. MLT’s 2QFY2025 DPU and distributable income included $6.055 million of divestment gains, compared to $8.77 million in divestment gains distributed in the 2QFY2024.
This quarter, MLT reported a fairly stable portfolio occupancy rate, although its results were hampered by a strong Singapore dollar (SGD), Koh says.
“Gross revenue and net property income (NPI) fell 1.8% and 2.1% y-o-y respectively due to a lower contribution from China, absence of contribution from divested properties, and depreciation of regional currencies against the SGD,” he writes. As at Sept 30, the Japanese yen (JPY) fell by 2.2% y-o-y while the Korean won (KRW) fell by 3.9% y-o-y.
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MLT also reported negative rental reversion of 0.6% on a portfolio-wide basis, thanks to a negative reversion of 12.2% from its Chinese portfolio. Excluding China, MLT would’ve reported a positive rental reversion of 3.6%.
“The outlook for China remains challenging and the weakness is expected to persist over the next few quarters,” says Koh.
In addition, the REIT cautioned that cost of debt would continue to rise as loans are refinanced and interest rate swaps are rolled over at higher interest rates in 2HFY2025 and FY2026. The REIT manager has guided for a cost of debt of 2.8% at end-FY2025 and 3.0% at end-FY2026.
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It has already made efforts to lower its financing costs by swapping a portion of its US dollar (USD), Australian dollar (AUD) and Hong Kong dollar (HKD) loans into Chinese yuan to benefit from the lower interest rates in China, notes Koh. The REIT issued $180 million worth of 4.30% fixed rate perpetual securities to redeem $180 million of perpetual securities with a higher rate of 5.2074%.
Due to the revised guidance of a slight increase in cost of debt, the analyst has increased his FY2026 DPU estimates slightly by 0.6% to 8.3 cents. As at MLT’s unit price of $1.40 as at Koh’s report on Oct 24, MLT provides a distribution yield of 5.9% for FY2026.
Meanwhile, CGSI, Citi, DBS, Maybank and OIR have kept their “add” and “buy” calls on MLT as the REIT awaits a turnaround on its China operations.
CGSI analysts Lock Mun Yee and Natalie Ong kept their target price unchanged at $1.73; they have also retained their FY2025 to FY2027 DPU estimates as they have not factored in any pre-emptive new acquisitions or divestments.
“Management indicated it is in discussions to divest more assets in Singapore, Malaysia, Japan, and China. It plans to redeploy the capital into new acquisitions, as well as focus on rejuvenating its portfolio towards higher-spec modern logistics properties,” say Lock and Ong.
For now, the analysts remain positive on the REIT as they believe that their FY2025 DPU yield of 5.7% has already mostly factored in the slower growth outlook. At the same time, they see that divestments from MLT could further spur recycling activities.
Citi analyst Brandon Lee has also maintained his target price of $1.58 amid “mixed operational updates”. Singapore’s rent reversion is expected to slow to high-single-digits compared to its reversion of 12.5% in the 2QFY2025 due to supply. “MLT hopes to get some pre-commitment ahead of the completion of 51 Benoi Road’s asset enhancement in May/June 2025 and it has been receiving healthy level of inquiries from a wide spectrum of industries (like electronics, industrial goods and consumables),” he writes.
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The REIT’s rent reversion for its Hong Kong portfolio also slowed due to “some softening in demand/spending and impacted sentiments from Cainiao Smart Gateway”. However, the REIT manager remains positive on the city given a limited three-year supply.
Meanwhile, Japan saw weaker NPI in the quarter due to larger multi-tenanted buildings – Kuwana Centre and Mapletree Kobe Logistics Centre, notes Lee.
However, he says the REIT manager expects China’s negative rent reversion to narrow in six months.
“MLT registered rent reversion of -3% in Tier-1 cities (due to Shanghai’s oversupply, which should stabilise next few quarters; 93% of its leases signed in Tier-1 cities) and -13% to -14% in Tier-2 cities in 2QFY2025 and expects the negative double-digit reversion of around -12% (similar to 2QFY25’s -12.2%) to remain over the next two quarters, after which narrowing to negative single-digit (though it is not sure how long this will persist),” says Lee.
“While spot rents have continued to decline in China, the pace of decline has slowed and MLT believes the market is stabilising. Per management while China is currently suffering in terms of property market and consumption, it remains an important market for MLT given the size of its economy, population and consumer base, as well as high savings rate and rising urbanization,” he adds.
DBS Group Research analysts Derek Tan and Dale Lai have kept their target price of $1.75 as they like the REIT manager’s “robust financial management”. The REIT’s quarterly results reflected “stable” financial metrics despite a rise in interest rates.
“The Monetary Authority of Singapore (MAS) leverage ratio inched slightly higher to 40.2% (+0.6% q-o-q), with the (debt + perpetual)/asset ratio increasing slightly to 44.6%, as the manager took on more debt to fund recent acquisitions. We note that while these levels have inched higher in recent quarters, they are still within management’s acceptable range,” say the analysts.
“Overall interest cost remained steady at 2.7% (+0.2% q-o-q, flat y-o-y). Through active management of the REIT’s expiry profile and debt currency mix, and despite the overall increase in interest rates, MLT was able to control its overall interest burden,” they add. “Looking ahead, management expects the overall cost of debt to still rise as hedges roll off during 2024 but still stay within 3.0%, which is within our projections.”
Tan and Lai also expect MLT’s occupancy rates to remain “resilient” thanks to its diversified Asia Pacific (Apac) portfolio while it awaits a turnaround in China.
“Occupancy rates are expected to remain resilient, supported by historical evidence of their stability during economic uncertainties. We believe that the REIT’s high earnings visibility – a welcome trait in the current economic environment – implies that its premium to net asset value (NAV) is fair,” they write.
The analysts also see potential acquisitions to “fuel further upside”. The REIT still has a “visible pipeline” of properties estimated to be worth over $2 billion that can be injected into the REIT over time.
“This visibility and availability of a pipeline from their sponsor is a unique trait that its peers do not enjoy,” say Tan and Lai.
Despite the positives, the analysts have lowered their estimates for FY2025 to FY2026 to account for a higher unit base. “Given that interest rates are expected to be on a downtrend, our DBS economists are expecting a further 200 basis points in cuts in the Fed Funds rate till the end of 2025. Thus, we have also cut our interest rate assumption to assume a more normalised interest rate trajectory in later years. This brings our revised FY2025 – FY2027 DPU to 8.1 cents - 8.5 cents, implying a yield of [under] 6.0%.”
Maybank analyst Krishna Guha is also keeping his target price at $1.60 as he sees “potentially receding headwinds” despite the lower quarterly DPU, with China reversions guided to be less negative. The REIT also had a lower debt cost guide. As such, Guha has increased his FY2026 DPU estimates by 1.3% to 7.7 cents.
OIR’s research team has raised its fair value estimate to $1.68 from $1.65 as they see the DPU weakness as “not unexpected”.
In their report, the team likes MLT’s overall positive portfolio rental reversions and further inroads to divestments.
Even though the team has upped its fair value estimate, the team has lowered its FY2025 and FY2026 forecasts by 0.3% and 0.9% to 8.09 cents and 8.19 cents respectively as they include MLT’s divestments announced to-date and slightly lower borrowing costs. The team has also lowered its cost of equity assumption to 6.4% from 6.5% previously.
Units in MLT closed 1 cent lower or 0.73% down at $1.37 on Oct 25.
