Mapletree Logistics Trust (MLT) 2QFY16/17 Review

Mapletree Logistics Trust (MLT) focus on logistic real estate and it has portfolio over 8 countries which provide diversification instead just focus on a local market. Based on FY15/16 Below are the NPI weightage for the 8 countries – this weightage has change in FY16/17 as the management has acquired additional 4 properties in Australia (5 years WALE) , 1 property in Vietnam (1.8 years WALE) and 1 in Malaysia (1.7 years WALE)

1. Singapore 38.5%
2. Japan 19.3%
3. Hong Kong 17%
4. South Korea 9.7%
5. China 7.1%
6. Malaysia 4.3%
7. Vietnam 1%
8. Australia 3.1% (around 18 years’ lease term)

Mapletree Logistics Trust (MLT) Lease expiry profile

1. FY16/17 - 4.1% SUA and 6% MTB (Singapore 2.3%, Hong Kong 0.2%, South Korea 4.7%, China 2%, Malaysia 0.2%, Vietnam 0.6%)
2. FY17/18 - 4.1% SUA and 12.9% MTB (Singapore 3.9%, Japan 2%, Hong Kong 1.8%, South Korea 1.5%, China 4.6%, Malaysia 1.7%, Vietnam 1.4%)
3. FY18/19 - 4.9% SUA and 15% MTB (Singapore 7.7%, Hong Kong 2.4%, South Korea 0.5%, China 3.8%, Malaysia 4.2%, Vietnam 1.3%)
4. FY19/20 - 5.9% SUA and 6.8% MTB (Singapore 5.0%, Japan 0.8%, Hong Kong 1.1%, South Korea 2.6%, China 0.8%, Malaysia 1.5%, Vietnam 0.7%) FY21 - 6.7% SUA and 4.1% MTB (Singapore 4.9%, Japan 3.2%, South Korea 0.3%, China 0.5%, Malaysia 1.9%)

The occupancy for MLT has been pretty stable hovering between 95% to 97% and based on the lease expiry profile for FY16/17, Singapore 2.3% and South Korea 4.7% might be the challenge.

Based on FY15/16 annual report, the challenge will be for industrial properties in Singapore (major supply in 2016 and 2017), Japan (a large supply of over 6 million sqm of logistics space, projected to come on-stream between 2016 and 2017) and South Korea (its rental revision cause the overall rental revision to be negative -6% in 1Q FY16/17) due to Pyeongtaek master lease expired)

Singapore account for 38% NPI, Japan account for 19% NPI and Korea account for around 9% NPI.
It need to be noted in FY15/16 the management manage to have positive 4% rental revision, in 1QFY16/17 the management manage to have positive 3% rental revision excluding South Korea (including South Korean would be -6%) and in 2QFY16/17 the management manage to have positive 2% rental revision despite the challenge.

The dividend of MLT

The dividend has been hovering around 7 cents and the current dividend include gain from the divestment of 20 Tampines Street 92 of S$1,000,000 per quarter (for 8 quarters from 3Q FY15/16) and 134 Joo Seng Road of S$505,000 per quarter (for 4 quarters from 3Q FY15/16) respectively.

For FY 15/16 the adjusted dividend excluding the gain from the divestment will be 7.26 cents where for FY16/17, the 1H adjusted dividend will be 3.59 cents.

Revenue and NPI has been growing so do the gearing however the DPU does not seems to go anywhere.With the current challenge, the upcoming expire leases, recent acquisition, built in rent escalation and management trying to improve the occupancy, I hope the dividend at least can be maintained.

Management ownership,

The directors of the manager have increase their ownership in the past years.

1. Paul Ma Kah Woh (2014 - 800,731) (2015 - 855,257 ) (2016 - 902,443) (Resign in 31 July 2016)
2. Cheah Kim Teck (2014 - 416,000)
3. Pok Soy Yoong (2014 - 567,910) (2016 - 767,910)
4. Tarun Kataria (2014 - 100,000) (2016 - 300,000)
5. Hiew Yoon Khong (2014 - 2,366,000) (2015 - 2,756,000) (2016 - 3,156,000)
6. Chua Tiow Chye (2014 - 1,315,431) (2015 - 1,405,001) (2016 - 1,507,077)
7. Ng Kiat (2014 - 125,000)

Summary,

With the past performance, recent acquisition, asset enhancement initiative, management ownership. I would like to get some of the units when the opportunity come as it will provide a diversification and exposure to other countries instead of just on local market and this will come with 

1. Risk of the currency from those 8 countries which will be minimized by the management is hedging some of the income and the economies.
2. Risk from interest rate hike considering the current effective interest just 2.3% with the gearing of 37.6%
3. Losing master tenant (42% of the revenue) which will cause occupancy and loss revenue till management fill up the gap
4. China Tax Implementation based on revenue impact for those properties located in China