MLT manager turns cautious on forex, interest rate impact

THE manager of Mapletree Logistics Trust (MLT) on Tuesday (May 2) warned of more uncertainty ahead, as higher interest rate costs and foreign exchange fluctuations continue to impact its performance.

“No matter how resilient and robust we make our portfolio, the headwinds of what is happening globally against the Singapore dollar, as well as the interest rates, that is going to continue to impact us,” said Ng Kiat, chief executive officer of the manager, at a briefing following the release of its results for the full year ended March.

“I want to highlight this word of caution that, moving ahead, we will continue to see a very resilient portfolio, we will continue to have positive rental reversions… but the forex and the interest costs are going to hit us quite badly,” she added.

Ng noted that on a full-year basis, MLT’s borrowing costs have risen by about S$6 million.

MLT’s gross revenue rose 7.7 per cent to S$730.6 million for FY22/23, while net property income (NPI) was 7.2 per cent higher at S$634.8 million.

The amount distributable to unitholders climbed 10.8 per cent to S$432.9 million, including partial distribution of gains from divestments.

Distribution per unit (DPU) for the full year was 2.5 per cent higher at S$0.09011, compared with S$0.08787 the previous year.

For the fourth quarter, DPU was flat at S$0.02268, as gross revenue dipped 2.2 per cent to S$178.9 million and NPI slipped 1.8 per cent to S$154.3 million.

Ng said forex losses – largely due to the depreciation of foreign currencies such as the Chinese yuan, Japanese yen, South Korean won and Australian dollar against the Singapore dollar – accounted for some S$10 million of the gross revenue decline in Q4.

“The part that we are most concerned about is, as our portfolio continues to deliver – in local currency terms – stable, resilient growth, what will hit us will be the forex and borrowing costs,” Ng said.

As at end-March, MLT’s total debt stood at S$4.9 billion with an aggregate leverage ratio of 36.8 per cent.

Its weighted average annualised interest rate climbed to 2.7 per cent, from 2.2 per cent as at Mar 31, 2022.

Some 84 per cent of its debt has been hedged into fixed rates, and 77 per cent of its income stream for the next 12 months has been hedged in Singapore dollars.

“On the DPU front, the part that hits us in a huge way (is forex),” Ng said. “That’s the one that worries me the most because that’s something that we have limited control over and that’s something that I don’t have very clear visibility.”

Meanwhile, the real estate investment trust (Reit) manager said China “continues to be a weak spot” that it will be “very vigilant” about.

Ng added that the manager is looking at divesting some of its assets in China with “limited potential”.

China accounts for 20.8 per cent of MLT’s S$12.8 billion in assets under management, and 22.1 per cent of its FY22/23 gross revenue.

“On the operating front, China is the weakest link,” Ng said. “But overall, it is only 20-odd per cent… So in local currency terms, I don’t see China dragging the portfolio down in a significant way.”

“MLT’s Q4 results painted a relatively healthy operational performance with marginally better positive rent reversion and solid occupancy, but currency weakness continued to be a drag on DPU and portfolio valuation,” said Citi analyst Brandon Lee.

“On the bright side, logistics cap rate appears to be still undergoing marginal cap rate compression – aside from Australia – despite higher interest rates,” he added.

Lee has a “neutral” call on MLT with a target price of S$1.59.

Units of MLT closed at S$1.75 on Tuesday, up 0.6 per cent or S$0.01.