Mapletree Logistics Trust's portfolio occupancy slipped for the second straight quarter in 2Q15

Cost pressures are rising for MLT.

Mapletree Logistics Trust’s net property income inched up by 3% year-on-year to $68.7m in 2Q15. Although its revenues grew 6% y-o-y to $81.5m in 2Q15, MLT was impacted by lower occupancy at several newly converted multi-tenanted buildings in Singapore where the single-tenant master leases had expired.

According to Barclays, MLT’s portfolio occupancy fell for the second consecutive quarter in 2Q15 due mainly to expiries of single-tenant master leases in Singapore, while the firm continues to grapple with rising cost pressures from the transition of these single-tenanted assets to multi-tenanted buildings.

On a positive note, MLT’s debt costs held stable at 2.0%, and its four acquisitions in 1H15 are all expected to be accretive.

The amount distributable to unitholders gained 4% year-on-year to S$46.3 million while DPU rose 3% to 1.88 cents for 2Q FY14/15. For the first six months of FY14/15, amount distributable to Unitholders grew 5% to S$92.9 million while DPU rose 4% to 3.78 cents. ]

“We raise FY15-17E estimates by 1-2% to account for higher acquisitions and reduced finance costs. These raise our DDM-based PT to S$1.20 from S$1.18, which is still based on a cost of equity of 7.8%. With limited upside potential, we maintain our Equal Weight rating. We think the risk reward is fair with FY15-17E dividend yields of 6.4-6.5%, as the leasing environment for MLT is becoming more challenging, and as more properties are expected to be converted to single-tenanted buildings, which will likely raise operating costs and vacancy rates, and 41% of its NPI is sourced from overseas (other than HK), which could see further weakening against a strong SGD,” stated Barclays.