The REIT reporting season is well underway and income-focused investors will be curious to know how REITs are managing the twin worries of high inflation and surging interest rates.
A few REITs such as Mapletree Logistics Trust (SGX: M44U) and Parkway Life REIT (SGX: C2PU) have managed to report year on year increases in distribution per unit (DPU).
Within the Mapletree family of REITs, Mapletree Pan Asia Commercial Trust (SGX: N2IU) also reported a 6.1% year on year rise in its DPU.
However, the third member of the trio, Mapletree Industrial Trust (SGX: ME8U), or MIT, saw its DPU fall year on year due to a larger unit base and higher operating expenses.
The CEO of the manager for MIT, Mr Tham Kuo Wei, is not fazed.
He says that the REIT will focus on strengthening its portfolio through accretive acquisitions and developments and also explore divestments as part of its portfolio rebalancing effort.
Here are five aspects to take note of from the industrial REIT’s latest earnings report.
1. A mixed set of earnings
MIT reported a mixed set of earnings for both its fiscal 2023’s fourth quarter (4Q FY2023) and full-year (FY2023).
4Q FY2023 saw gross revenue inch up 4.3% year on year to S$171.1 million while net property income (NPI) crept up 3.8% year on year to S$128.9 million.
Despite these increases, DPU fell by 4.6% year on year to S$0.0333 for the quarter.
For FY2023, gross revenue jumped 12.3% year on year to S$684.9 million with NPI increasing by 9.7% year on year to S$518 million.
With a larger base of units and along with higher operating expenses and borrowing costs, DPU slipped by 1.7% year on year to S$0.1357.
The industrial REIT’s units provide a trailing distribution yield of 5.8%.
Notably, finance costs for 4Q FY2023 surged by 46.6% year on year to S$27.8 million and 37.7% year on year for FY2023 to S$97.6 million.
2. A slight increase in portfolio valuation
MIT’s portfolio valuation improved slightly for FY2023, coming in at S$8.73 billion for all 141 properties.
This was slightly above the S$8.72 billion as of 31 March 2022.
For the Singapore portfolio, the increase came from the completion of 161, 163 and 165 Kallang Way (collectively known as “Mapletree Hi-Tech Park”).
In the US, MIT’s data centre portfolio also saw a marginal valuation increase due to higher rents but was offset by the use of higher capitalisation rates in line with higher interest rates.
3. Healthy debt metrics
The REIT’s balance sheet continues to be healthy, with a gearing ratio of 37.4% as of 31 March 2023.
Around three-quarters of MIT’s debt is on fixed rates and the weighted all-in cost of debt stood at 3.5%, inching up slightly from 3.3% as of 31 December 2022.
The interest coverage ratio was decentstayed high at 4.5 times and the REIT manager has conveniently quantified the impact of further interest rate rises on DPU.
Based on 4Q FY2023’s DPU of S$0.0333, a 2% increase in interest rates will result in a 2.8% decline in DPU.
4. Encouraging operating metrics with a diversified tenant base
Apart from having a healthy debt profile, MIT also reported an encouraging set of operating metrics.
Overall portfolio occupancy came in at 94.9%, dipping slightly below the 95.7% registered in the previous quarter.
The REIT’s leases are also well-spread out, with around one-sixth expiring in FY2024 and another one-sixth in FY2025.
The weighted average lease expiry by gross rental income (GRI) was 3.9 years for the portfolio.
MIT also boasts more than 2,000 tenants with the largest tenant, HP Inc (NYSE: HPQ) contributing just close to 6% of GRI.
The next largest tenant, AT&T (NYSE: T), takes up 5.4% of GRI.
The top 10 tenants make up around 29.5% of the REIT’s GRI.
5. Mapletree Hi-Tech Park to start contributing
MIT’s redevelopment project at Kallang Way has finally been completed.
Originally known as the Kolam Ayer Cluster 2, the gross floor area of the two flatted factories and an amenity centre located there took up close to 507,000 square feet.
The cluster has been renamed Mapletree Hi-Tech Park and now comprises new hi-tech buildings including a seven-storey build-to-suit facility for an anchor tenant.
With the increase in plot ratio, the total gross floor area has now increased by 70.8% to 865,600 square feet.
Including the anchor tenant, MIT has secured committed occupancy of 44.1% by net lettable area for the new industrial park.
The rental income from these leases will start contributing to rental income and DPU for FY2024.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.
