The REIT sector has taken it on the chin this year with the bellwether iEdge S-REIT Index falling by 7.6% in the past year.
A combination of surging inflation and higher interest rates is to blame for investors’ bearishness towards the asset class.
Yet, despite these challenges, a handful of Singapore REITs have managed to hold their own.
One such REIT is Mapletree Logistics Trust (SGX: M44U), or MLT, which owns a portfolio of 189 properties across eight countries worth S$13.3 billion.
The logistics REIT has weathered this downturn well thus far, making it a solid REIT to include in any investor’s investment portfolio.
Here are four reasons why MLT makes for an attractive investment.
1. Rising DPU despite macroeconomic headwinds
MLT boasts a solid track record of rising distribution per unit (DPU).
From its fiscal 2016 (FY2016) ending 31 March 2016 till FY2023, the industrial REIT’s DPU increased uninterrupted from S$0.0738 to S$0.09011.
DPU rose at a compound annual growth rate (CAGR) of 2.9% over these seven years, an impressive achievement considering FY2020 to FY2022 including the COVID-19 pandemic.
This track record continues even with the twin headwinds of high interest rates and inflation, a feat that is not easy to pull off.
For the REIT’s first half of fiscal 2024 (1H FY2024), gross revenue dipped by 0.7% year on year to S$368.9 million.
Net property income (NPI) weakened by 1% year on year to S$320.1 million because of weak regional currencies and higher finance costs.
However, DPU managed to eke out a small 0.5% year-on-year gain to S$0.04539.
MLT’s trailing 12-month DPU stood at S$0.09034, giving its units a trailing distribution yield of 5.6%.
2. A strong sponsor
MLT is also helmed by a reliable, strong sponsor in Mapletree Investments Pte Ltd or MIPL.
MIPL is a reputable global real estate development, investment, and property management firm with a diverse portfolio of assets across Asia, Europe, the US, and the UK.
As of 31 March 2023, MIPL owns and manages S$77.4 billion of office, retail, data centre, residential, industrial, and other properties.
The importance of a strong sponsor cannot be emphasized more.
Not only can the sponsor help to bail the REIT out during troubled times, but it can also provide a steady pipeline of assets that can be injected into the REIT.
A financially strong sponsor such as MIPL can also help MLT to borrow at more favourable rates, thus helping to reduce the REIT’s overall cost of debt.
3. Active capital recycling
The essence of a strong REIT lies not just in managing debt well or keeping expenses low.
A good REIT manager should also know how to recycle capital by selling older, lower-yielding assets and replacing them with newer, higher-yielding ones.
By doing so, the REIT’s portfolio can be rejuvenated and it can also garner robust valuations and enjoy a high NPI yield.
MLT has been exemplary on this front.
For the second quarter of fiscal 2024 (2Q FY2024), a total of five properties were divested or are pending completion.
These properties span Singapore, Malaysia, and Japan and all were sold at a premium to their valuation.
Capital recycling has continued in 3Q FY2023 with the recent announcement of the divestment of 10 Tuas Avenue 13 for S$11.1 million.
This sale was done at a 15.7% premium to the property’s valuation as of 1 October 2023.
Over in Malaysia, MLT is selling two properties (Flexhub and Padi) for a total of RM 151.2 million, representing a premium above the valuation of 7.4% for Flexhub and 16% for Padi.
4. DPU-accretive acquisitions and redevelopments
Aside from being adept with divestments, MLT’s manager has also conducted choice acquisitions that have helped to boost the REIT’s DPU.
MLT is also undertaking selective redevelopments to help grow the logistics REIT’s asset base and increase its rental income.
For 1H FY2024, the REIT acquired a total of eight properties in Japan, South Korea and Australia for S$904.4 million.
The manager expects to make between S$200 million to S$300 million in acquisitions for the remainder of FY2024 in countries such as Malaysia, Vietnam, and India.
The gearing level stood at 38.9%, allowing the REIT to tap into debt financing for more yield-accretive acquisitions.
On the redevelopment front, MLT is amalgamating two land parcels in Subang Jaya, Malaysia with the REIT’s existing assets.
This site, once completed, is poised to be the first mega logistics facility in the area with a potential gross floor area (GFA) of 1.4 million post-redevelopment.
The total cost is estimated at around S$173 million with completion expected in the first quarter of 2027.
Over in Singapore, MLT is also working on a redevelopment project for 51 Benoi Road with a plan to increase its GFA from 391,000 square feet to 887,000 square feet.
This project is slated for completion in the first quarter of 2025.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.