Mapletree Logistics Trust sees lower rates for renewed China leases persisting in coming quarters

SINGAPORE - Mapletree Logistics Trust (MLT) expects negative rental reversions in China to persist over the next few quarters, with expiring rental rates being marked to market, said its manager on July 11.

The manager noted that China is facing “a challenging leasing environment” amid a weaker-than-expected post-pandemic economic recovery and a healthy supply of warehouse space.

Against this backdrop, tenants in China are cautious and preferring not to renew leases ahead of their expiry, or are committing to shorter leases because of the uncertainty in the market outlook, it added.

The manager made these remarks when responding to queries from its unit holders ahead of its annual general meeting on July 17. It posted a list of these questions with its responses in a bourse filing in the evening.

A unit holder asked about the likelihood of tenants in China renewing their leases amid the challenges faced by the nation’s logistics sector, and whether further drops in rental reversion were expected.

The inquirer, referring to the annual report, noted that 29.6 per cent of the trust’s leases are due for renewal in the coming financial year; of these leases, 13.2 per cent are in China. In response, MLT’s manager cited the challenges in the leasing environment, the weaker post-pandemic turnaround and the oversupply of properties putting pressure on rentals, and making tenants cautious.

It added that the trust prioritised maintaining stable occupancy rates over rental growth, and maintained that the team had made “good progress” in renewing or replacing expiring leases.

Another unit holder asked whether the trust would be affected by the falling occupancy rates in China, to which the manager replied that it has historically kept its occupancy rate at more than 90 per cent. The nation’s average rate is 78.2 per cent.

When asked about factors that would spur the recovery of logistics assets in China, MLT’s manager noted that the supply of logistics space is anticipated to fall in 2024 compared with 2023, which could trigger a recovery.

Unit holders also expressed concern about the impact of macroeconomic drivers such as supply-chain reconstitutions.

In reply, MLT’s manager said that the trust is poised to reap the benefits of supply-chain diversification, because South-east Asia is now an attractive destination for businesses on the hunt for alternative manufacturing bases.

The trust listed Vietnam, Malaysia and India as “prime beneficiaries” of this trend.

“Our exposure to emerging markets positions us to harness their higher growth potential and benefit from structural trends,” it said. “This is balanced by our approximately 70 per cent exposure to developed markets, which provide stability to overall portfolio performance.”

Units of MLT closed four cents, or 3.03 per cent, higher at $1.36 on July 12.

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