Overview: Mapletree Logistics Trust (MLT SP)

Mapletree Logistics Trust (MLT) is a prominent Asia-focused logistics real estate investment trust (REIT) managing a diverse portfolio of 188 logistics properties. With an asset under management (AUM) of S\$13.4 billion, the trust spans across nine key markets, including Australia, China, Hong Kong, India, Japan, Malaysia, Singapore, South Korea, and Vietnam. The portfolio reflects a strategic emphasis on logistics hubs that align with supply chain dynamics and e-commerce growth.

The current share price of MLT stands at S\$1.29, with a target price of S\$1.41, reflecting a potential upside of 9.3%. The recommendation is to HOLD, owing to mixed market dynamics and financial indicators.

Key Challenges: Exposure to Greater China

MLT’s exposure to Greater China remains a significant concern. The high vacancy rate of 21.5% in China continues to put downward pressure on rents. Consumer confidence and retail sales in China have been adversely affected by the downturn in the property market and lukewarm wage growth. Furthermore, domestic e-commerce and express delivery demand, which often involve short-term leases, remain weak.

Large integrated e-commerce platforms are increasingly consolidating their operations to self-built warehouses, further eroding demand for third-party logistics properties. As a result, rents for logistics spaces in China have declined by 3% quarter-on-quarter (qoq) and 6.4% year-to-date (ytd) as of 3Q24. Tier 2 cities in China have been particularly affected, with negative rental reversion of -12.2% in 2QFY25, compared to -3.5% for Tier 1 cities.

Adding to the challenges is the looming threat of a potential escalation in the US-China trade conflict. Any additional tariffs imposed by the US could weaken consumer confidence and domestic consumption in China, further delaying recovery in demand for logistics spaces.

Opportunities in South China

Despite these challenges, MLT sees pockets of strength in South China, particularly driven by growth in cross-border e-commerce. However, the Guangdong province, which accounts for only 5% of MLT’s China portfolio by floor space, limits the trust’s ability to capitalize on this trend.

Performance in Singapore

In Singapore, logistics rents have shown resilience after a remarkable rise. Prime logistics rents were flat quarter-on-quarter in 3Q24 but increased by 3.3% year-on-year. Since the trough in 1Q20, rents have surged by an impressive 42.7%. While tenants, including third-party logistics (3PL) and e-commerce players, are now resisting further rent increases, MLT maintained a stable occupancy rate of 95.9% for its Singapore portfolio in 2QFY25.

Looking ahead, the supply of prime logistics space is expected to rise significantly to 4.9 million square feet in 2025, up from 2.0 million square feet in 2024. This increase is likely to moderate rent growth, with management projecting positive rental reversion in the high single digits for FY26.

Performance in Australia

Australia’s logistics market continues to be buoyed by e-commerce growth, with penetration rates rising by 0.7 percentage points year-on-year to 13.5% as of 3Q24. Although rental growth has decelerated in key cities like Sydney, Melbourne, and Brisbane, MLT’s properties in Australia remain under-rented by 30%, ensuring positive rental reversion in the near term.

Vacancy rates in Australia remain low at 1.9%, with new supply pipelines already 60% pre-committed for 2024 and over one-third pre-committed for 2025. New supply is expected to ease by 2026, further supporting the market’s dynamics.

Strategic Repositioning and Divestments

MLT is actively repositioning its portfolio towards modern logistics properties in growth markets like India, Malaysia, and Vietnam. These markets are benefiting from supply chain realignments, e-commerce expansion, and a limited supply of modern logistics infrastructure.

In 1QFY25, MLT completed the acquisition of three Grade A logistics properties in Malaysia and Vietnam for S\$227 million. To fund these acquisitions, MLT plans to divest S\$1 billion worth of older logistics properties with limited redevelopment potential over the next three years. Hong Kong and China account for half of these targeted divestments, with S\$300 million expected to be executed in FY25.

Debt Management and Cost of Borrowing

MLT’s aggregate leverage stood at 40.2% as of September 2024, with management cautioning that the cost of debt will inch higher in the coming quarters. The trust has taken proactive measures, such as issuing S\$180 million of 4.30% fixed-rate perpetual securities in August 2024 to redeem higher-rate perpetual securities. Despite these efforts, the average cost of debt is expected to rise from 2.7% in 2QFY25 to 3.0% by end-FY26.

Financial Performance and Projections

For FY25, MLT’s net turnover is projected at S\$732 million, with EBITDA at S\$520 million. However, net profit is expected to decline to S\$272 million, down from S\$303 million in FY24. Distributable income per unit (DPU) is also forecasted to drop from 9.0 cents in FY24 to 8.2 cents in FY25.

Key metrics like occupancy rates remain robust at 96%, but rental reversions have turned negative at -0.6% as of 2QFY25. Weighted average lease expiry (WALE) has also declined slightly to 2.8 years.

Valuation and Recommendation

Based on the Dividend Discount Model, with a cost of equity at 7.0% and terminal growth at 1.5%, MLT’s target price is set at S\$1.41. The recommendation remains HOLD, reflecting cautious optimism amidst market challenges and strategic realignments.