Keppel Infrastructure Trust downgraded to ‘hold’; Mapletree Logistics Trust ‘buy’ call maintained: DBS

[SINGAPORE] Analysts from DBS Group Research are mixed on some real estate investment trusts (Reits) this earnings season – where they have kept their “buy” rating on logistics-focused Mapletree Logistics Trust (MLT), but downgraded Keppel Infrastructure Trust (KIT) to hold.

This is amid widespread economic uncertainty – mainly from the recent US-China trade war – which risks ripple effects on their portfolios.

The target prices for both trusts have been lowered to S$1.55 from S$1.75 for MLT, and S$0.45 from S$0.57 for KIT.

While MLT’s Q4 distribution per unit (DPU) fell by 11.6 per cent to S$0.01955, DBS’ Dale Lai and Derek Tan said that it was “well-anticipated by the market”.

The analysts explained in their Thursday (Apr 24) report that stripping out the Reit’s divestment gains of S$27 million, compared with S$41.5 million from a year earlier, its core FY2025 DPU would have come in at S$0.07519, down 7.9 per cent year on year instead.

“The drop was due to lower contribution from China, divested properties and general currency weakness against the Singapore dollar, mitigated by stronger performance from the Reit’s Singapore, Australia and Hong Kong properties, coupled with acquisitions,” they wrote.

Additionally, the manager of the Reit also decided to hold back from distributing its past undistributed divestment gains, in the light of market uncertainty brought about by the US-China trade war. Its leverage remained stable, but was at the higher end of the historical range at 40.7 per cent.

This amounted to around S$19 million, which the analysts deemed a prudent move.

They noted that the trust’s leverage ratio was affected by a year-end devaluation exercise, coupled with the manager taking on more debt for acquisitions.

Still, the trade war still raises business uncertainties and could affect prospects in the medium term, wrote the analysts. However, as MLT’s exposure is substantially insulated with 85 per cent of portfolio revenue from domestic demand, it suggests minimal impact from the tariffs, they explained.

At its current price, the Reit trades at a price-to-book ratio of 0.9 times and offers a yield of over 6 per cent, which is attractive, the analysts noted.

“If interest rates ease, we expect stronger allocations into S-Reits (Singapore-listed Reits), especially those with defensive sector exposure,” they added.

Meanwhile, analyst Suvro Sarkar has a more “cautious” stance on KIT, citing how there may be concerns over the stability of distribution income.

“For a business trust like KIT, cash flows are expected to be predictable, and for a long time, they were – even during the Covid-19 period,” he explained in an Apr 23 note.

However, since 2023, cash flow has been harder to predict and its timing has been less consistent, with one-offs and adjustments. This does not make for a great reading, warned the analyst.

“Distribution income in both 2023 and 2024 came in lower than 2022 levels, and distributions in 2023 were shored up by proceeds from “capital optimisation” (or debt refinancing) – a trend that is concerning,” he wrote.

In the company’s Q1 business update released on Tuesday, a loss of S$678,000 was noted for the distribution income under the Philippine Coastal segment due to higher debt repayment of S$5.2 million. The trustee-manager noted that Q1 distributable income will decrease by 31.9 per cent on the year to S$45.5 million after adjusting for one-offs as well.

Looking ahead, higher-than-expected capital expenditure (capex) – of both maintenance and growth types – could again lead to volatility in distribution income.

He also noticed that while the trust’s balance sheet presents no immediate concerns, it is “more stretched than before”, with its gearing metrics above 40 per cent before the Philippine Coastal disposal, and are above the Monetary Authority of Singapore’s guidelines for S-Reits.

“We see limited further debt headroom for growth, and KIT may need to tap the equity market for any future transactions,” he said.

“The question is – at current yields of around 10 per cent, can public equity markets be the reliable funding source KIT is looking for? And how will that affect the trust’s ability to grow?” he asks.

To Sarkar, though the trust is trading at a healthy yield, the weak share price performance year to date highlights that KIT “needs to inspire more confidence” in its ability to generate stable cash flows.

As at 1.10 pm on Friday, units of KIT were trading 1.2 per cent or S$0.005 down at S$0.40. Units of MLT were trading 4.1 per cent or S$0.05 lower at S$1.16.