Mapletree Logistics Trust share price in trouble

Lifetime Membership What the hell. Never in my wildest dream did I expect Mapletree Logistics Trust share price to trade below its Net Asset Value (NAV). This STI constituent, supposedly a blue chip in SGX, has been a major disappointment for many SGX investors since the Fed started to hike interest rates in 2022. When can this counter ever see daylight?

Dampened by heightened geopolitical tensions and longer-than-expected high interest rate environment, the whole of S-REIT industry has been in wretched form for the last two years. Mapletree Logistics Trust is no exception. Year-to-date, Mapletree Logistics Trust share price continues its dismal form, having plunged by a whopping 20.5% and became one of the biggest falling stars among the STI constituents. However, the counter was in the spotlight recently when a unitholder flagged out that nearly 30% of leases are due for renewal in the coming financial year 2024/25 during the AGM. What raised a few eyebrows was that 13.2% of these leases are in China.

For background, Mapletree Logistics Trust is an S-REIT that invests in a diversified portfolio of logistics real estate in Asia Pacific with the aim of providing its unitholders with a stable distribution stream. As at May 2024, it has a portfolio of 186 properties in Singapore, Australia, China, Hong Kong SAR, India, Japan, Malaysia, South Korea and Vietnam with assets under management of $13.3 billion.

For the past two years, the Chinese market has been in a complete mess, largely due to the persistent weakness in the property sector and oversupply of warehouse space. S-REITs with exposure to China, such as Mapletree Logistics Trust, were among the worst performers in SGX. This is not surprising as many investors are concerned over the weak consumer and business sentiment in China. Consequently, Mapletree Logistics Trust share price came under heavy pounding as the counter plummeted from $1.70 in January 2024 to $1.25 on 9 July 2024.

In FY2023/24, China was the third largest revenue contributor for MLT, providing 19.2% of the total gross revenue. Due to the exposure in China, MLT’s portfolio was hit by the troubles over in China. Occupancy rate was 93.2% while the average rental reversion was -7.9% for the financial year. The management warned that “tenants in China remain cautious, with a preference not to renew leases ahead of expiries and they are committing to shorter leases due to the uncertain market outlook”. Additionally, the management also added that “expect negative rental reversions to persist over the next few quarters as the expiring rental rates are marked to market”.

Notwithstanding the challenging macro-environment, what truly riled me was the number of new units issued to the Management as management fees, as well as the private placement exercise to fund the acquisitions in FY2023/24. These actions created huge dilutive effect on Mapletree Logistics Trust share price. During FY2023/24, MLT issued 32,287,155 new units in respect of payment of management fees to the Manager and Property Manager. In addition, MLT issued 121,285,000 new units in relation to a private placement exercise and 24,382,702 new units as part payment of distribution for the period from 11 April 2023 to 31 December 2023.

For the records, the total outstanding shares amounted to a whopping 5.02 billion. The equity funding exercises and the consistent payment of management fees, though a common industry practice, have caused the unit base to be enlarged through the years. To add oil to fuel, the currency translation loss led to Net Asset Value (NAV) per unit fell by 4.2% to $1.38.

During the recent AGM, unitholders have approved the adoption of the unit buy-back mandate. However, where is MLT going to get the funds to do the shares buy-back? We all know that S-REITs are all highly leveraged and cash-strapped. Even if there are cash, the funds would be used mainly for working capital purposes. So far, the only S-REIT that has always been buying back its units is Keppel REIT, which has bought back 10.1 million units as of 20 June 2023. Will the unit buy-back revive Mapletree Logistics Trust share price in 2024?Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am vested in this counter, so my views on Mapletree Logistics Trust share price may be biased.

Mapletree Logistics Trust share price hinges on new CEO?

Given the myriad of challenges confronting MLT, it seems that the new CEO, Ms Jean Kam, has [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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