Mapletree Logistics Trust (MLT SP): Navigating Trade Tensions, BUY Rating Affirmed on Reasonable Valuation

Maybank Research Pte Ltd April 25, 2025
Mapletree Logistics Trust (MLT SP): Navigating Trade Tensions Amidst Falling Distribution – BUY Recommendation Maintained
Krishna Guha (krishna.guha@maybank.com | (65) 6231 5842) analyzes Mapletree Logistics Trust’s performance and outlook.
Mapletree Logistics Trust (MLT) faces headwinds from higher borrowing costs, weakness in the China market, and lower divestment gains, leading to a decline in distributions. However, with stable occupancy, positive rent reversions outside China, and a reasonable valuation, Maybank Research retains a BUY recommendation, albeit with a slightly trimmed target price.

Q4 and Full Year FY24/25 Performance Review

MLT reported its financial results for the fourth quarter (4Q) and the full fiscal year (FY) ending March 2025.

• Distribution Per Unit (DPU): 4QFY24/25 DPU was SGD1.955 cents, marking a decrease of 2.4% quarter-on-quarter (QoQ) and 11.6% year-on-year (YoY). The full-year DPU stood at SGD8.053 cents, down 10.6% YoY.
• Revenue & NPI: 4Q revenue was SGD179.6 million (-1.5% QoQ, -0.8% YoY), and 4Q Net Property Income (NPI) was SGD152.8 million (-2.8% QoQ, -1.6% YoY). For the full year, revenue reached SGD727 million (-0.9% YoY) and NPI was SGD625.3 million (-1.5% YoY).
• Influencing Factors: The results were impacted by continued weakness in China, ongoing portfolio reconstitution efforts, foreign exchange (FX) volatility, and lower margins. Borrowing costs increased YoY due to repricing but decreased QoQ, benefiting from lower interest rates on unhedged loans. Lower distribution of divestment gains compared to the previous year also contributed to the DPU decline.
• NPI Margin: The NPI margin for 4Q was 85.1%, slightly down from 86.2% in 3Q25 and 85.8% in 4Q24. The full-year NPI margin was 86.0%, compared to 86.5% in FY24.

Operational Stability and Market Dynamics

Despite financial pressures, MLT’s operational metrics showed resilience in certain areas.

• Occupancy: Portfolio occupancy remained stable at 96.2% in 4Q, a marginal dip from 96.3% in 3Q. Increases in occupancy in Japan and China helped offset declines observed in Singapore, Malaysia, and Vietnam.
• Tenant Base: Management guided that 85% of the group’s revenue comes from tenants serving domestic consumption needs. However, export-oriented economies like Singapore and Vietnam have felt some impact from the temporary warehousing of pulled-back orders due to trade tensions.
• Rental Reversion: Rent reversion improved to +5.1% in 4Q, up from +3.4% in 3Q. Excluding China, the reversion was even stronger at +6.9% in 4Q (vs. +5.4% ex-China in 3Q). China’s rent reversion showed signs of stabilization, coming in at -9.4% in 4Q compared to -10.2% in 3Q. Management maintained its reversion guidance, suggesting China’s performance will be less negative YoY.
• Leasing Trends: While a few tenants are opting for long-term leases, this is not considered a widespread trend.
• China Focus: Significant revenue from China is due for renewal in the current fiscal year (FY25/26), making tenant retention a key focus area. Risks remain associated with this exposure.

Detailed Financial Highlights (4Q & FY24/25)

*Source: Maybank IBG Research*

Capital Management and Portfolio Valuation

MLT continues to practice prudent capital management, although capital recycling faces challenges.

• Gearing and Debt: Aggregate leverage (gearing) edged up slightly to 40.7% from 40.3% in the previous quarter. The all-in financing cost remained stable at 2.7%, and the interest coverage ratio (ICR) was also stable at 2.9x. Management did not provide specific debt cost guidance for FY25/26, unlike the c.2.9% mentioned in 3Q.
• Portfolio Valuation: The overall portfolio valuation remained stable. This was primarily due to capital expenditure (capex) and mergers & acquisitions (M&As), which were offset by FX translation losses and fair value losses resulting from higher capitalization rates in Singapore, Hong Kong, China, and South Korea.
• Capital Recycling: The pace of capital recycling may be influenced by ongoing macro uncertainties and the evolution of regional trade dynamics. Management guided for no distribution of divestment gains from FY25/26 out of prudence, despite having SGD19 million of residual gains available. This compares to SGD27 million distributed in FY24/25.

Valuation, Target Price, and Recommendation

Maybank Research adjusted its estimates and target price based on the latest results and guidance.

• Estimate Changes: DPU estimates for FY25/26 are lowered by 3.7%, and for FY26/27 by 0.9%. This is mainly due to the absence of divestment gain distributions (previously factored at SGD15m for FY25/26 and SGD5m for FY26/27) and higher borrowing costs (approx. SGD7m from expensing capitalized interest for a redevelopment project). This is partially offset by including income from a Singapore redevelopment project.
• Valuation Method: The valuation uses a 3-stage dividend discount model (DDM) with an unchanged cost of equity (COE) of 7%.
• Target Price (TP): The DDM-based TP is trimmed to SGD1.30 from SGD1.35, reflecting the lower DPU estimates.
• Recommendation: Maintain BUY. The rationale is based on a reasonable valuation (projected 6% yield and 0.9x Price-to-Book ratio), potential stabilization in China/easing trade tensions, and less intense FX headwinds going forward. The current share price is SGD 1.16, implying a +16% potential upside to the new target price.

Estimate Changes Summary

*Source: Maybank IBG Research*

Investment Risks

Potential risks to the investment thesis include:

• Slower-than-expected growth in China.
• Negative impacts from escalating trade tensions.
• A slower pace of capital recycling than anticipated.
• Higher interest rates increasing borrowing costs and potentially lowering valuations.
• Adverse FX translation losses impacting distributions.

Company Overview and Strategic Focus

• Market Position: MLT is the second-largest industrial sector S-REIT, sponsored by Mapletree Investments (a Temasek Holdings company).
• Portfolio Growth: Since its IPO in 2005 with 15 Singapore properties valued at SGD422m, the portfolio has expanded significantly to 187 logistics assets across nine Asian geographies valued at SGD13.2b as of end-March 2024.
• Geographic Diversification: Operations span Singapore, Hong Kong, China, Australia, Malaysia, South Korea, Japan, Vietnam, and India.
• Sponsor Pipeline: Access to a sponsor pipeline of 3.9m sqm Gross Floor Area (GFA) (completed and under-development), compared to the current portfolio Net Lettable Area (NLA) of 8.1m sqm.
• Strategic Direction: Focus on capital recycling and redevelopment initiatives, particularly as accretive acquisitions become more challenging and the China market underperforms.
• Recent Activities (2024): Acquisitions in Malaysia, India, and Vietnam totaling SGD240m; Divestments amounting to SGD237m; Change of CEO.

Financial Metrics Outlook and Swing Factors

• Distribution Support: Potential support for distributions could come from capital recycling activities, top-up distributions from divestment gains (though currently guided as none for FY25/26), and potential appreciation of regional currencies.
• NPI Margins: Expected to stabilize over FY25-26E with easing inflation pressure.
• Lease Profile: Features a well-staggered lease expiry profile with a Weighted Average Lease Expiry (WALE) by NLA of 3.1 years as of March 2024.
  • FY25E: 25.5% NLA expiry (Single-user: 18.6%, Multi-tenanted: 16.0%)
  • FY26E: 5.6% NLA expiry
  • FY27E: 2.9% NLA expiry
  • FY28E: 11.7% NLA expiry
  • FY29E: 4.1% NLA expiry
  • >FY29E: 3.6% NLA expiry (Weighted Average: 3.1 years)

Swing Factors:

• Upside:
  • Faster-than-expected pickup in logistics leasing demand improving occupancy.
  • Better-than-anticipated rental reversion trends.
  • Accelerated capital recycling and distribution of divestment gains.
• Downside:
  • Prolonged economic slowdown reducing demand for logistics space (lower occupancy/rents).
  • Termination of long-term leases weakening portfolio tenant retention.
  • Significant FX volatility impacting hedging and DPU.
  • Sharper-than-expected rise in interest rates increasing debt costs, impacting earnings and valuations.

ESG Considerations

MLT’s Environmental, Social, and Governance (ESG) profile highlights several initiatives and metrics:

• Business Model & Governance: MLT invests in industrial real estate, enhances assets, and redevelops properties. It is regulated by the Monetary Authority of Singapore (MAS). The board exhibits high independence and experience. Acquisitions have driven AUM growth (to SGD13.0b by FY18), with freehold properties comprising c.20% of assets by NLA. MLT participated in the GRESB Real Estate Assessment for the first time in FY22.
• Material E Issues:
  • Targets energy intensity reduction (1.0-1.5% from FY22 baseline) across all assets with operational control (expanded scope in FY23).
  • Aims to increase solar energy capacity by 15-20% (from FY22 baseline) and double it by 2030.
  • Secured SGD800m in green funding (SGD450m sustainability-linked loans, SGD350m green loans), c.16% of total borrowings.
  • Plans to introduce green leases in Singapore and increase certified green space (by GFA) by 25% (from FY22 baseline).
  • Long-term target: 20% energy reduction in Singapore and Hong Kong by 2030 (from FY19 baseline).
• Key G Metrics & Issues:
  • Externally managed by a subsidiary of sponsor Mapletree Investments.
  • Board: 12 directors (7 independent, 4 female). CEO is the only executive/non-independent member.
  • Management Fees: Base fee (0.5% of deposited property), performance fee (3.6% pa of NPI), acquisition/disposal fees (1.0%/0.5%), comparable to peers.
  • Remuneration: Key management remuneration <3% of distributable income since FY17 disclosure. Payout ratio consistently 100%.
  • Acquisitions/Divestments: Accelerated DPU-accretive acquisitions since FY18 following rigorous process. Divestments since FY15 delivered >SGD0.1b in gains/distributions.
  • Balance Sheet: AUM jumped 2.5x from FY17-22, leverage averaged c.38%, supported by equity fundraising.
• Material S Issues:
  • Aligned CSR initiatives with sponsor’s framework, encouraging employee community service.
  • Gender Diversity: High female representation (59% employees, 50% management team). Targets 25% female board representation by 2025, 30% by 2030 (vs. one-third in FY22).
  • Talent Development: Supported by sponsor’s recruitment initiatives and L&D programs.
  • Training: Averaged 35.8 hours per employee in FY22 (up from 26.4 in FY21), including ESG and digital transformation training.

*ESG Risk Rating: 15.6 (Low) as of Oct 4, 2022. Score Momentum -4.4 (Improving). Controversy Score: 0 (No Reported Incident).*

Financial Forecast Summary

*Source: FactSet, Maybank IBG Research*

Key Metrics & Ratios (Forecast)

*Source: Company; Maybank IBG Research*