As the earnings season rolls on, investors have been keeping their eyes peeled for the latest financial numbers from the REIT sector.
The combination of high interest rates and surging inflation has put income investors in a tizzy as they fret over declining distributions.
Last week, Keppel DC REIT (SGX: AJBU) became one of the first REITs to report its earnings and announced a slight year-on-year decline in its distribution per unit (DPU).
This week, Mapletree Logistics Trust (SGX: M44U), or MLT, reported its latest financial numbers for the second quarter of its fiscal 2024 (2Q FY2024) ending 30 September 2023.
The logistics REIT bucked the trend with a slight increase in its year-on-year DPU.
Here are five things you should note from the industrial REIT’s latest earnings report.
1. A resilient financial performance
Despite the ongoing headwinds, MLT reported a resilient performance for 2Q FY2024.
Gross revenue inched up 1.5% year on year to S$186.7 million while net property income (NPI) edged up 1.2% year on year to S$162 million.
MLT’s DPU improved by 0.9% year on year to S$0.02268.
Investors will be glad to note that finance costs for 2Q FY2024 increased by just 10.2% year on year because of a higher level of borrowings to fund recent acquisitions as well as higher average interest rates on existing debt.
The increase in finance costs was slightly lower than 1Q FY2024’s year-on-year increase of 13.4%, pointing to potential stabilisation of borrowing costs in the next few quarters.
For the first half of FY2024 (1H FY2024), gross revenue declined by 0.7% year on year to S$368.9 million with NPI slipping 1% year on year to S$320.1 million.
DPU for 1H FY2024 still managed to eke out a small gain, rising by 0.5% year on year to S$0.04539.
2. Solid operating metrics
In addition to its solid financial performance, MLT also reported healthy operating metrics across its portfolio of 189 properties.
Portfolio occupancy stood at 96.9% as of 30 September 2023, slipping by just 0.2 percentage points from the previous quarter’s 97.1%.
The average rental reversion for the portfolio came in positive at 0.2%, though this was significantly lower than 1Q FY2024’s 4.2%.
The culprit was China, where rental reversion came in negative for the quarter.
Excluding MLT’s Chinese properties, rental reversion would have been strongly positive at 9.1%.
3. Stable debt metrics
MLT’s debt metrics remained stable, with aggregate leverage coming in at 38.9%, slightly below the 39.5% reported in the previous quarter.
The good news is that the REIT’s average cost of debt has stayed constant at 2.5% with 83% of its total debt hedged to fixed rates, mitigating a sharp increase in finance costs.
The REIT only has 4% of its total borrowings (S$198 million) coming due in FY2024 and has in place committed credit facilities of around S$1 billion to refinance it.
For every 0.25 percentage point increase in base interest rates, MLT will see just a 0.4% decline in DPU for the quarter.
4. Active capital recycling efforts
The REIT manager has been active in capital recycling to rejuvenate MLT’s portfolio.
Four divestments were completed or pending completion in 2Q FY2024.
Three properties were divested in Malaysia, two at RM 50.2 million at 6.1% above valuation and the third at RM 60 million, 15.4% above valuation.
Singapore’s 8 Loyang Crescent was sold for S$27.8 million, 17.3% above valuation.
Finally, Moriya Centre in Japan was divested at 12.2% above valuation, garnering proceeds of JPY 10 billion.
Investors should note that these divestments were all made at a premium to valuation, netting the REIT healthy profits that can be reinvested.
Meanwhile, MLT also has two ongoing development projects.
One is the amalgamation of two land parcels in Subang Jaya, Malaysia, to increase its gross floor area (GFA) by five times to 700,000 square feet.
This project should be completed by the first quarter of 2027 (1Q 2027).
The other is at 51 Benoi Road which will more than double its GFA to 887,000 square feet and will be completed by 1Q 2025.
5. A cautious outlook
MLT has maintained a cautious outlook for the remainder of FY2024 amid a weak global economic outlook characterised by tight financial conditions.
Rent reversion in China is projected to stay negative but rental rates across the rest of MLT’s portfolio should remain stable.
The manager will focus on optimising portfolio performance and continue its capital recycling efforts through selective divestments, asset enhancements, and yield-accretive acquisitions.
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Disclosure: Royston Yang owns shares of Keppel DC REIT.
