Mapletree Logistics Trust‘s (SGX: M44U), or MLT, reported a quarterly results that is slightly weaker than my prediction.
Dividend per unit (DPU) for the quarter dropped by 10.6% year-on-year (YOY) to S$0.02027, as compared to my prediction of 7-9% decline.
However, excluding divestment gains, the YOY decline of DPU by 8.8% to S$0.01907 falls within my prediction.
It is always good to hear directly from the management. The insights gained from firsthand accounts can differ from those derived from secondary sources, as personal interpretations of information can vary.
The following are my key takeaways from the recorded earnings call.
China remains challenging but still an important market
It’s the second quarter in a row where the rental reversion for China properties is in the range of low double-digit.
The management expects this to go on for another two quarters, and barring any unforeseen circumstances, the trend should reverse to lower negative rental reversion after that.
The positive comes from 93% occupancy, which is much higher than peers of 80%.
Also, given its large population with high urbanisation rate and savings rate, they still see significant potential in demand.
Additionally, they are taking advantage of China’s lower interest rate to replace their higher rates debt from other countries.
This has partly helped them to maintain their average borrowing cost of 2.7% for this quarter.
Cost of borrowing increasing at a slower rate
Previously, the initial guidance of the average borrowing cost is 3% by end of this year and 3.3% next year.
Now, with the swaps and rate cut, management is guiding an average borrowing cost of 2.8% by end of this year and 3% for next year.
S$300 million divestment and no equity fund raising for this financial year
CEO Jean has identified S$1 billion pipeline for divestment, out of which about S$300 million should be completed by this year.
Year to date, they have completed S$130 million and are currently in the process of divesting another China property.
Jean also shared that half of the S$1 billion pipeline will come from China or Hong Kong. The other half will be from Singapore, Malaysia, Australia, Japan and Korea.
At first look, this might lead to the thinking that China or Hong Kong is no long important. However, S$500 million is less than 10% of their China and Hong Kong assets.
Assuming these divestments come true in the next few years, China and Hong Kong properties will still take up high 30% of MLT’s assets.
There is no change of plan to use divestment proceeds for any new acquisition. The management reiterated that they are not planning for any equity fund raising for this financial year.
Finally, they are keeping dividend reinvestment plan (DRP) active and are mainly using it to fund the asset enhancement initiatives for the property at 51 Benoi Road. However, internally they are reviewing it.
Holding on to my shares and likely to participate in DRP
This is the first time I am hearing from Jean and her confidence is reassuring.
While it’s disappointing to see a dividend reduction, I can understand the circumstances for now and appreciate their transparency about it.
I believe they could have used the proceeds from divestments to further inflate the DPU. However, their acquisition of properties over the past year suggests that this wasn’t their primary goal.
As of this quarter’s end, MLT still owns 186 properties, just three fewer than last year.
Even after accounting for divestment gains, the adjusted quarterly DPU of S$0.1907 offers an attractive yield of 5.4% based on the current share price of S$1.40. Given this, I plan to hold onto my existing shares and likely participate in DRP.
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