UOB Kay Hian analyst Johnathan Koh has downgraded his call on Mapletree Logistics Trust M44U (MLT) to “hold” following the release of the REIT’s 1QFY2025 results ended June.
Koh cites two key reasons for his downgrade: the REIT’s plans to expand in growth markets is curtailed by its elevated aggregate leverage of 39.6%, and the outlook for China will remain challenging and is expected to persist over the next few quarters.
In his July 26 note, the analyst notes that the REIT’s reported distribution per unit (DPU) for the quarter came in at 2.068 cents, down 8.9% y-o-y, which is below expectations.
The REIT’s growth revenue and net property income also dipped by 0.3% and 0.9% y-o-y respectively due to a curtailment of contributions from overseas logistics properties by a strong Singapore dollar.
In comparison, the Japanese yen and Korean won have experienced a depreciation of 10% and 4% y-o-y respectively.
On a constant currency basis, revenue and NPI would have grown by 2.1% and 1.3% y-o-y respectively.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Beyond the REIT’s results being “hampered by a strong Singapore dollar”, the analyst highlights that MLT faces persistent weakness from China.
The REIT’s rental reversion in China dipped by 11.3%, due to negative consumer confidence following the ongoing downturn in China’s residential property market. Koh notes that tenants have been cautious and prefer to sign shorter leases.
Leases expiring in FY2025 accounted for 24.5% of MLT’s total net lettable area (NLA), of which China accounted for 43% of these expiring leases.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
Although the REIT saw positive rent reversion of 2.6% driven by Singapore which saw an increase of 7.8%, these higher contributions were offset by its performance in China.
“Thus, MLT is expected to incur negative rental reversion at low-to-mid teens over the next few quarters,” says the analyst.
The analyst notes that portfolio occupancy declined marginally by 0.3 percentage points q-o-q to 95.7%, as at June. However, occupancies for Australia, India, Japan and Vietnam were maintained at above 98%.
He adds: “Temporary vacancies in Singapore and Vietnam are expected to be backfilled in 2QFY2025.”
Although MLT has announced plans to expand in growth markets, the analyst notes that MLT’s pace of acquisitions is set to be significantly curtailed by its “dismal” unit price performance.
“It is likely to be confronted by negative sentiment in the event it launches equity fundraising to finance acquisitions,” says the analyst.
Following the REIT’s elevated aggregate leverage at 39.6%, MLT’s future acquisitions would have to be funded by divestments.
For more stories about where money flows, click here for Capital Section
MLT has since announced the completion of four divestments in Singapore, Malaysia and China valued at $45 million in 1QFY2025.
The REIT is set to divest properties with older specifications and limited redevelopment potential.
MLT has also announced its target to divest $150 million - $200 million worth of logistics properties in FY2025.
All in all, the analyst has trimmed his FY2025 DPU forecast by 1.7% due to higher operating expenses, and has lowered his target price to $1.37 from $1.58 previously.
As at July 30, shares in MLT closed at 1 cent higher or up 0.77% at $1.31.
