Mapletree Logistics Trust posts 2.5% drop in Q4 DPU; manager warns of further headwinds 

HIGH interest costs and weak regional currencies weighed on Mapletree Logistics Trust’s performance for Q4 ended Mar 31, with distributions per unit (DPU) falling 2.5 per cent to 2.211 cents.

Gross revenue for the quarter rose 1.2 per cent to S$181 million, while net property income (NPI) was up 0.6 per cent to S$155.3 million, the trust announced on Monday (Apr 29).

NPI was weighed down by a 4.5 per cent increase in property expenses to S$25.7 million.

MLT’s Q4 growth was also dampened by weaker performance in China, higher borrowing costs with the high interest rate environment, and the depreciation of certain regional currencies against the Singapore dollar.

These currencies are mainly the yen, yuan, ringgit and won. On a constant-currency basis, MLT’s revenue and NPI would have instead grown by 3.6 per cent and 3 per cent, respectively.

Ng Kiat, chief executive of the manager, said during an earnings briefing that MLT had been one of the last few Reits that maintained positive DPU in previous quarters, but added it “cannot fight against the macroeconomic situation”.

She noted that high borrowing costs, weak regional currencies and the challenging leasing environment in China have impacted performance, and will remain as headwinds going forward.

“We are entering into a period where the uncertainty and volatility are a lot more pronounced,” Ng said. “We think that DPU will continue to come down.”

The manager said it anticipates that replacement loans and hedges will be at significantly higher than existing rates. The persistent weakness of regional currencies against the Singapore dollar will also continue to exert pressure on MLT’s distributions.

For the full year, MLT posted a 0.4 per cent rise in gross revenue to S$733.9 million, while NPI was relatively flat at S$634.9 million.

The amount distributable to unitholders rose 3.3 per cent to S$447.1 million, lifted partly by S$41.6 million of divestment gains. But DPU slipped 0.1 per cent to 9.003 cents on an enlarged unit base.

MLT’s portfolio occupancy was relatively stable at 96 per cent as at Mar 31, 2024. The portfolio’s weighted average lease expiry is about three years.

The Reit reported an average positive rental reversion of 2.9 per cent across its portfolio in Q4 FY24, but the performance was uneven. Singapore properties had the highest reversion of 11.1 per cent, but its China properties had negative reversion of 10 per cent.

The manager expects rental reversion to remain in the positive 2 to 3 per range in the next few quarters for the overall portfolio, but said it still expects negative rental reversions in the low teens from properties in Chinese Tier 2 cities.

In China, the leasing environment continues to be “challenging” amid uncertainty over its economic recovery, and negative rental reversions are expected to continue, noted MLT in its earnings statement.

Ng said that the China operating environment is expected to stay volatile for the next 12 months and possibly longer.

“We are trying to get greater clarity on whether we are seeing the bottom, but I don’t think we are seeing it now,” she said.

She noted that about 20 per cent of MLT’s portfolio revenue comes from China, while another 10 per cent comes from emerging markets such as Malaysia, Vietnam and India.

“We will have to work even harder to push our Singapore, Japan and Hong Kong (assets) because these make up about close to 60 per cent,” Ng said. “If we are able to push these three markets and deliver stronger results, then it will compensate for the weakness that we see in China.”

MLT owns 187 properties as at Mar 31, with an aggregate portfolio property valuation of S$13.2 billion – a 3.2 per cent increase from the previous year, boosted by its acquisition of nine properties in the year.

The rise was however partly offset by MLT’s divestment of seven properties during the year, a currency translation loss of S$470.9 million and a S$1.8 million net fair-value loss on investment properties. The latter largely arises from properties in Australia and China.

With the current cost of equity and debt, the Reit has to rely more on asset recycling, and the manager is looking to divest some of its lower spec assets in China and Hong Kong.

“We will divest and recycle from low yielding and then recycle it into higher yielding assets,” Ng said. The manager is eyeing about S$200 million to S$500 million in divestments in the new financial year, and some of the proceeds could be invested into new assets from either its sponsor or third parties.

Ng noted that the Reit has already announced acquisitions of over S$200 million from its sponsor. “Will we be able to do another S$200 million? That’s a possibility,” she said.

Units of MLT ended Monday at S$1.34, down S$0.01 or 0.7 per cent.