The managers of both Mapletree Logistics Trust M44U (MLT) and Mapletree Pan Asia Commercial Trust N2IU (MPACT) blamed China and Japan respectively for their lower y-o-y 1HFY2025 distributions per unit (DPU). The two REITs have March year-ends.
MLT’s 2QFY2025 DPU fell by 10.6% y-o-y to 2.027 cents and 1HFY2025’s DPU fell by 9.8% y-o-y to 4.095 cents. Operationally, gross revenue fell by 1.15% y-o-y in 1HFY2025 to $365 million, and by 1.8% y-o-y in 2QFY2025 to $183.3 million. The declines were attributed to lower contribution from China, absence of revenue contribution from divested properties and currency weakness (mainly Japanese yen, Korean won, Chinese renminbi, and Vietnam dong) compared to Singapore dollar’s strength. The currency impact was mitigated by the use of foreign currency forward contracts to hedge against foreign-sourced income.
MPACT’s 1HFY2025 DPU declined by 7.9% y-o-y to 4.07 cents, and by 11.6% y-o-y in 2QFY2025 to 1.98 cents. The decline is attributed to MPACT’s two properties in China and a cluster of three office buildings known as the Makuhari properties in Chiba, Japan.
MLT’s overall occupancy rates held up at 96%. Even China’s occupancy was at a high level of 93.1% as at end-September, better than market occupancies and outperforming its peers. Nonetheless, overall rental reversions were a negative 0.6%, due to China’s negative 12.2% rental reversions in 2QFY2025. This dragged down the entire portfolio rental reversion to a negative 0.6% in 2QFY2025 as 44% of leases expiring during the quarter came from China. Excluding China, rental reversions would have been a positive 3.6%.
The outlook for China remains sombre. MLT’s manager, led by its CEO Jean Kam, indicated that Chinese rental reversions are likely to remain in the same vicinity (–12.2%) for the next two quarters before improving to negative single-digit levels. Rental reversions are an important indicator of rental revenue in future months.
When asked when Chinese demand is likely to recover, James Sung, head of investments at MLT’s manager, says: “That is anyone’s guess. It is dependent on the feel-good factor for the consumer. Hopefully, the government can do more. We are waiting for the uptick in demand growth.”
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Nonetheless, Sung points out that MLT’s occupancy in China is higher than the sector’s average among peers because MLT’s retention rate is around 70% to 80%, and its tenants are incentivised to stay on.
Negative impact from China, Japan
During a results briefing by MPACT’s manager, the discussion centred around the Makuhari buildings, where two anchor tenants have not renewed their leases. The NTT/Seiko lease was well-flagged in previous briefings by MPACT’s management. Although Seiko has exited the so-called Seiko Building, it remains 26% leased by net lettable area (NLA) to Seiko’s subsidiaries. A second Makuhari building was leased to Fujitsu, which will not be renewing its lease when it matures in 2026. Because of this, MPACT’s management has decided to revalue the Japanese properties for its 1HFY2025 results, causing a $120 million decline in their valuation. As of Sept 30, the three Makuhari buildings experienced an 18.6% decline in their valuations in Japanese yen (JPY).
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Sharon Lim, CEO of MPACT’s manager, says Japan was contributing $60 million to NPI. “In an extreme case, in three to five years, if there is ‘zilch’, NPI would fall to $30 million. Japan contributed $23.7 million to NPI in 1HFY2025. The Fujitsu lease ends in 2026, so we are enjoying the master lease income. In relation to the other leases and on the outlook for Japan for Makuhari assets, there won’t be an impact, and $120 million [of decline in valuation] is less than 1% of our portfolio value,” Lim elaborates.
The Seiko lease is the equivalent to a Hong Kong supermarket, she notes, while Fujitsu’s lease is equivalent to one lease in Mapletree Business City. “I’m not belittling the softness there. We have been guiding softness and now we have revalued the properties because of the Fujitsu notice,” Lim says.
A JP Morgan report on MPACT says: “We note that annualised 2QFY2025 NPI already amounts to $40 million, partially due to weaker JPY. We note the significant 10 points decline in Japan NPI margins to 59% in 2QFY2025 from 69% in FY2024 on the back of lower occupancies (82.3% in 2QFY2025, down 15 points y-o-y) and conversion to multi-tenancies from single-tenancy. We see the 9.5% negative Japanese reversions in 1HFY2025 as elevated and management is expecting occupancy at mBay Point (a Makuhari building) to further dip from its current 80% as underlying sub-leases expire. We fear an extended downtime for these affected properties as there was no committed timeline to address shortfalls.”
More divestments, capital recycling
Both MLT and MPACT’s managers are planning to divest rather than acquire. MLT’s Kam says that MLT is planning $1 billion of divestments. As at Sept 30, MLT owned $13.37 billion of investment properties.
“In terms of the $1 billion pipeline [of divestments], half would probably be from China and Hong Kong,” says Kam. The other half will be from Malaysia, Singapore, Japan, Australia and Korea. “These are the countries that we have identified where assets are no longer relevant. It didn’t fit with our strategy and there isn’t much potential for redevelopment.” In 1HFY2025, MLT divested $130 million worth of assets compared to a target of $300 million for the financial year.
Any acquisition is due primarily to be funded by the recycled proceeds, Kam adds. “In terms of whether there are any plans for further equity fundraising, we do not have any plans at the moment, at least for this financial year,” she emphasises.
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Similarly, when asked whether MPACT is planning any acquisitions, Lim replies: “We have to be more careful because in overseas markets, spread [between the cost of debt and property yield] is not there. We are still in the market to see if there is an improvement in the quality of our portfolio.”
Lim was also asked if MPACT plans to divest any of its properties, in particular in China and Japan. On China, she points out the lack of demand drivers for real estate. “The China stimulus is positive on sentiment but we want to see more [movement] on the demand side. The key for real estate is always demand. [In China], the supply situation is huge versus less demand. The stimulus is on finance and debt. Any news is good news for sentiment but it will take a bit of time to see if demand comes back.”
Lim adds that Gateway Plaza in Beijing has done quite well, and the key office tenant’s (BMW) lease runs till 2030.
When pressed on the Japanese properties (MPACT owns nine Japanese properties including the three in Chiba), Lim says: “If we can divest, we would. It is a locational issue. It will be more challenging to do so.” Can the latest price writedown for the Makuhari buildings clear the market? The buyer has to be single-user — someone who wants to own the whole building versus someone buying it to rent as a multi-tenanted property, Lim suggests.
Change of use for the Japanese properties would depend on the restrictions, she adds. “We will look at best use. If it is conversion into student housing, that is not our core expertise. I would rather sell than do that,” Lim says.
MPACT’s core properties, which are non-negotiable and core to the portfolio, are VivoCity and Mapletree Business City. In July, MPACT divested Mapletree Anson for $775 million to a third party, well above its acquisition price of $680 million.
“If it makes sense to recycle, we would. We are not going to be pushed to do recycling due to gearing. We are not in dire straits. Our capital structure is relatively strong. For divestment, when it comes, we will consider, except for VicoCity and Mapletree Business City,” Lim says.
What the analysts say
Analysts appear to be more positive towards MLT than MPACT. For MLT, OCBC Investment Research (OIR) has kept its “buy” rating, and CGS International, its “add” rating. This is despite OIR trimming its FY2024 and FY2026 DPU forecasts.
JP Morgan has kept its overweight recommendation on MLT as its analysts Mervin Song and Terence Kho had expected its 1HFY2025 DPU to decline by 9.8% to 4.095 cents, “representing 51% of our and consensus FY2025 DPU estimates”.
Song and Khi quote statistics from a 3Q2024 JLL report which had indicated operational challenges in the logistics sector. JLL’s report says that 3Q2024 Hong Kong logistics rents fell 1.8% q-o-q and 4.8% y-o-y following a 1.8% q-o-q/2.9% y-o-y decline in 2Q2024. The report also points to 3Q2024 Beijing and Shanghai logistics rents falling by 1.6% q-o-q/7.6% y-o-y and 2.4% q-o-q/5.5% y-o-y respectively. This compares against 3.9% q-o-q/6.1% y-o-y declines in 2Q2024 for Beijing and 1.9% q-o-q/3.5% y-o-y declines in 2Q2024 for Shanghai.
Additionally, in 2Q2024 vacancies also reached new highs for Shanghai (+2.2 points q-o-q to 25.5%), Beijing (+1.7 points q-o-q to 17.5%) and Hong Kong (+0.2 points q-o-q to 8.2%).
“Rent weakness and a challenging outlook in mainland China and Hong Kong, which represent 16% and 18% of MLT’s 1QFY2025 NPI, remain a key investor concern. However, downside risk in China and Hong Kong is partially mitigated by the fact that it has been well discussed by investors over the past 6–9 months and which we have flagged in our prior reports,” the JP Morgan analysts say.
Separately, JP Morgan downgraded MPACT on Oct 38 to “underweight” and a target of $1.30. “We see limited prospects of recovery in Japan, China and Hong Kong amounting to half the REIT’s revenue and NPI.”
