It has been a tough earnings reporting season for the REIT sector thus far.
Both Keppel DC REIT (SGX: AJBU) and Mapletree Logistics Trust (SGX: M44U), or MLT, reported flat year on year distribution per unit (DPU).
Keppel DC REIT saw a 73.4% year on year surge in finance costs for the first half of 2023 while MLT reported a 13.4% year on year jump in borrowing costs for its latest fiscal 2024’s first quarter (1Q FY2024).
The jump is caused by the sharp rise in interest rates caused by the US Federal Reserve’s continuous rate hikes.
Mapletree Industrial Trust (SGX: ME8U), or MIT, was also a victim of higher borrowing costs.
The REIT reported a slight year-on-year dip in DPU for 1Q FY2024 amid a tough environment.
Here are five highlights from the industrial REIT’s latest earnings report.
1. A respectable set of financial numbers
Considering the twin challenges of elevated inflation and high interest rates, MIT pulled off a respectable performance for the quarter.
Gross revenue rose 1.7% year on year to S$167.8 million while net property income inched up 0.7% year on year to S$129.9 million.
DPU, however, declined by 2.9% year on year to S$0.0339 due to a 32.5% year-on-year climb in borrowing costs and an enlarged unit base due to a private placement and the distribution reinvestment plan.
MIT’s trailing 12-month DPU stood at S$0.1347, giving its units a trailing distribution yield of 5.9%.
2. Healthy debt profile with minimal refinancing
MIT sported a healthy debt profile with aggregate leverage at 38.2%, just slightly higher than the 37.4% reported three months ago.
The REIT issued 12-year and 15-year Japanese-Yen (JPY) denominated medium-term notes such that 13% of MIT’s total debts now comprise JPY, helping to diversify its borrowings beyond just the US and Singapore Dollar.
MIT’s weighted-average all-in funding cost has also remained constant at 3.5% from the previous quarter with 78% of total debt pegged to fixed rates.
The REIT has minimal refinancing needs for the remainder of fiscal 2024 with just 3.3% of total loans to be refinanced.
MIT has helpfully quantified the effects of rising interest rates on its DPU, with a one percentage point rise in rates reducing DPU by 1.4%.
3. Robust operating metrics
Despite the tough environment, MIT continued to report robust operating metrics on its S$8.8 billion portfolio.
Portfolio occupancy remained high at 93.3%, though there was a slight dip from the 94.9% reported in the previous quarter.
The portfolio’s weighted average lease expiry by gross rental income (GRI) stood at 3.9 years, with lease expiries spread out evenly through FY2029 and beyond.
For this quarter, the REIT manager has disclosed the overall rental reversion for renewal leases, the first time it has done so.
It was good news here too as MIT achieved an average positive rental reversion of 5.3% across its portfolio.
4. A diversified tenant base
MIT also boasts a tenant base with more than 2,000 tenants.
These tenants provide wide diversification for the REIT as the largest tenant, HP Inc (NYSE: HPQ), contributes just 6.1% of GRI.
The top 10 tenants also include reputable companies such as Bank of America (NYSE: BAC) and Equinix (NASDAQ: EQIX) and make up slightly less than 30% of the REIT’s GRI.
GRI is also diversified among numerous trade sectors with no single sector accounting for more than 17.2% of GRI.
MIT’s tenant retention rate has also been impressive, with nearly two-thirds of tenants staying with the industrial REIT for four years or more.
For 1Q FY2024, the tenant retention rate stood at a high of 83%.
5. Growing the portfolio further
Meanwhile, the REIT manager has also been steadily growing the portfolio.
At the end of May, MIT announced its first acquisition in two years – that of a 98.47% stake in a data centre located in Osaka, Japan, for almost S$500.1 million.
This is a multi-storey, fully-fitted data centre with fit-out phases to be completed by May 2025 and is 100% leased to an established data centre operator for around 20 years.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.