Mapletree Logistics Trust's portfolio showing signs of resilience

SINGAPORE (Jan 25): UOB Kay Hian is reiterating its “hold” recommendation on Mapletree Logistics Trust (MLT) with a target price of $1.39.

Similarly, Maybank Kim Eng has a “hold” call on CCT, while OCBC Investment Research has a “buy” call.

See: MapletreeLog sees strong 3Q19 results as rental reversions gather pace

This came on the back of MLT on Monday announcing a 5.0% increase in its 3Q18/19 DPU to 2.002 cents, compared to 1.907 cents in 3Q17/18, bringing 9M18/19 DPU to 5.917 cents, 4.2% higher than 5.681 cents in 9M17/18.

The trust posted gross revenue of $120.8 million in 3Q18/19, 23.0% higher than $98.2 million a year ago, mainly attributed to higher revenue from existing properties, contribution from the completed redevelopment of Mapletree Ouluo Logistics Park Phase 1 in 2Q FY18/19, acquisitions in Hong Kong completed in FY17/18 and acquisitions in Singapore, Australia and Korea completed in FY18/19.

See: Mapletree Logistics Trust posts 5.0% increase in 3Q DPU to 2.002 cents

These results came in slightly above the research house’s expectations and on track to meet FY19 DPU expectation of 7.5 cents.

MLT’s gearing saw a slight increase to 38.8% in 3Q19, while total debt outstanding increased by $105 million q-o-q, due to loans drawn fund the acquisition of one property in Australia and one property in South Korea.

Overall occupancy rate also remain stable during the quarter at 97.7%.

During the quarter, JD.com gave up half of their leased space in the Zhejiang project, leading to the trust’s decline in China occupancy to 95.8%, but management has so far been able to replace most of the spaces with smaller replacement tenants.

In a Wednesday report, analyst Jonathan Koh says that this will help uplift its China segment’s occupancy in the next quarter. And due to stronger negotiating power with the small tenants, the analyst reckons that renewals may even see positive rental reversions.

Meanwhile, in terms of acquisitions, the management is focused on completed assets from its sponsor pipeline, with logistics development projects in Asia totalling about 51 million sq ft as at Dec 2018.

They also plan on divesting some assets in Singapore, Japan and South Korea in FY19.

Nonetheless, Koh is keeping a cautious outlook amid continuing trade tensions and tightening financial conditions.

Despite this, leasing demand for MLT's portfolio has held steady, supporting rentals and occupancy rates. Management also cited the high tenant retention of about 70-80% as signs of portfolio resilience going forward. They remain vigilant of the evolving environment, and have pro-actively hedged 85% of MLT’s total debt on fixed rates.

As at 4.40pm, units in MLT are trading at $1.38 or 1.4 times FY19 book with a DPU yield of 5.6%.