Mapletree Logistics Trust expects negative rental reversions in China over the next few quarters as the expiring rental rates are marked to market. As shared in FY23/24 financial results, Mapletree Logistics Trust’s portfolio achieved positive rental reversions across the markets ranging from 2.6% in South Korea to 11.1% in Singapore, except for China which registered negative rental reversion of -10.0%.
Before we look at what happen in China and how it affects Mapletree Logistics Trust, do you know what is negative rental reversion? Negative rental reversions occur when the estimated decrease in rent at review is below the gross rent.
Should investors worry about Mapletree Logistics Trust? Yes! Because 29.6% of Mapletree Logistics Trust’s leases are due for renewal in the coming financial year FY24/25, which is a rather significant portion. Notably, 13.2% of these leases are in China.
What was the reason for the negative rental reversion in China? One of the reasons was China’s post-Covid economic recovery was weaker than expected. As a result, consumption and business sentiments were impacted. The high supply of warehouse space also contributed to the challenging leasing environment. Despite the Chinese government announcing stimulus measures to support growth and consumption, the weakness in the property sector continued to dampen the outlook.
Because of the negative outlook, 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.
What is Mapletree Logistics Trust doing about it? As of 31 March 2024, the China portfolio registered an occupancy of 93.2%, above the country’s average occupancy rate of 78.2%. Mapletree Logistics Trust can only focus on achieving a stable occupancy at above 90%.
In FY23/24, Mapletree Logistics Trust also executed over S$200 million in divestments of properties with relatively older specifications. Year-to-date, Mapletree Logistics Trust announced the divestment of another three properties with a combined value of around S$37.4 million, comprising two properties from Singapore and one from Xi’an, China. The proceeds from the divestments will be recycle into acquisitions of modern, Grade A assets with higher growth potential.
Should investors be extremely worried? As shared in FY23/24 financial results, Mapletree Logistics Trust achieved positive rental reversions across the markets ranging from 2.6% in South Korea to 11.1% in Singapore. The positive rental reversions across other markets could cushion the negative rental reversions in China. With the possibility of Fed reducing rates in this September meeting, this could further cushion the impact.
With this, let us wait for further updates in Mapletree Logistics Trust’s first quarter FY24/25 financial results that will be made available after trading hours on 24 July 2024.