Daiwa downgraded Mapletree Logistics Trust to Sell from Underperform, saying valuations are “increasingly unattractive” and underlying distribution per unit (DPU) growth has been “negligible” after accounting for paying management fees in units.
“Investors that have bought into MLT on the logistics sector play and have made it a major outperformer may naturally assume that the impressive year-on-year DPU growth has been due to improving operational performance,” Daiwa said in a note Monday. “In reality, nothing could be further from the truth, in our view.”
Mapletree Logistics Trust did not immediately return Shenton Wire’s emailed request for comment.
Headline DPU growth over the past three financial years — at 0.8 percent on-year in fiscal 2017, 2.4 percent in fiscal 2018 and 4.2 percent in fiscal 2019, Daiwa noted.
But the investment bank said it estimated nearly all the DPU growth was due to increasing the amount of REIT management fees paid in units, rather than in cash.
That’s as same-property revenue has fallen for the past two financial years, down 2.9 percent on-year for the fiscal year ended 31 March 2018 and 2.6 percent for fiscal 2019, Daiwa said.
“The inconvenient truth from this analysis, in our opinion, is that MLT’s overall operating performance has contributed almost nothing to DPU growth in recent years,” Daiwa said. “DPU growth was due to a financial maneuver.”
To be sure, Daiwa said “the MLT REIT manager has every right” to increase the portion of its fees paid in new units to 33.2 percent in fiscal 2019 from zero in fiscal 2016, and it wasn’t unusual compared with other Singapore REITs.
But the note added that the implication ahead is there won’t be any further DPU boost unless MLT raises the amount of fees it pays in units, which the investment bank didn’t expect to occur.
Daiwa cut its fiscal 2020-22 DPU forecasts by 2 percent after incorporating actual reported revenue for each property, and it trimmed its target price to S$1.25 from S$1.26.
Mapletree Logistics Trust units were flat at S$1.60 at 3:26 P.M. SGT.
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