Not many Singapore REITs can tout themselves as being resilient to both inflationary pressures and surging interest rates.
We recently saw CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, reported a rise in both revenue and net property income (NPI) for its 2023’s first-quarter business update.
Healthcare REIT Parkway Life REIT (SGX: C2PU) also saw its distribution per unit (DPU) continue its upward climb for its latest operational update.
Not to be outdone, Mapletree Logistics Trust (SGX: M44U), or MLT, has joined this league.
The logistics REIT has not only reported a higher year on year DPU for its fiscal 2023 (FY2023) but is also actively rejuvenating its portfolio through capital recycling initiatives.
Investors can rest assured that the manager can continue to add value for the REIT as it navigates the current tough economic conditions.
Here are five highlights from the REIT’s latest earnings report.
1. A commendable financial performance
Gross revenue for the fourth quarter of FY2023 (4Q FY2023) dipped by 2.2% year on year to S$178.9 million.
The decline was because of the depreciation of foreign currencies such as the Australian Dollar, Japanese Yen, and South Korean Won, against the Singapore Dollar (SGD).
NPI slipped by 1.8% year on year to S$154.3 million but the distributable amount inched up 1.1% year on year to S$109.2 million.
DPU stayed flat year on year at S$0.02268.
Based on constant currency, DPU would have risen by 3.3% year on year for 4Q FY2023.
For FY2023, gross revenue climbed 7.7% year on year to S$730.6 million while NPI improved by 7.2% year on year to S$634.8 million.
DPU for the fiscal year edged up 2.5% year on year to S$0.09011, giving MLT’s units a trailing distribution yield of 5.2%.
2. Favourable debt metrics
MLT continued to sport favourable debt metrics that will allow the REIT to undertake yield-accretive acquisitions by tapping on loans.
As of 31 March 2023, aggregate leverage stood at 36.8% with a low cost of debt of 2.7%.
Investors should note that the cost of debt has climbed from 2.2% a year ago to the current 2.7% as the logistics REIT is not immune to the rising interest rate environment.
Last month, MLT announced a major acquisition – that of eight properties for S$904.4 million in Tokyo, Seoul, and Sydney.
The REIT has also set aside a six-storey industrial warehouse in Hong Kong for potential divestment.
A private placement of 121,285,000 new units at an issue price of S$1.649 was undertaken to raise funds for this acquisition.
After accounting for this acquisition, the Hong Kong divestment and equity fundraising, aggregate leverage for MLT is projected to rise to 39.9%.
3. High occupancy and diversified mix of tenants
Despite facing macroeconomic headwinds, MLT continued to boast a high occupancy rate of 97% for FY2023, up slightly from the 96.9% just three months ago.
The average positive rental reversion for 4Q FY2023 also came in at 3.1%, showcasing continued strong demand for the REIT’s properties.
MLT’s portfolio held 185 properties as of 31 March 2023, with its top 10 tenants making up around 23.5% of total gross revenue.
Its largest tenant, CWT, only took up 4.4% of gross revenue and the REIT has a diversified base of 887 tenants, of which close to 75% are in consume-related sectors.
4. Capital recycling efforts
Aside from the potential Hong Kong divestment and the acquisition mentioned above, the manager has been active in other capital recycling efforts.
Back in December last year, MLT announced the divestment of 3 Changi South Lane for S$22 million, a 39.2% premium to the property’s latest valuation of S$15.8 million.
This divestment was completed on the last day of March this year.
The manager also announced the divestment of two properties in Malaysia back in January 2023 for RM 50.2 million, a 6.1% premium to their latest valuation.
There is also another potential acquisition of two assets in Jiaxing, China, for approximately S$209.6 million.
These transactions show the manager’s commitment to active capital recycling to maximise value for unitholders.
5. Hedged both interest and forex risks
Investors who worry over the REIT’s continued foreign exchange (forex) risks will be glad to know that MLT has hedged 77% of its distributable income in SGD for the next 12 months.
This move will offer some comfort to unitholders that DPU will not be too affected by forex movements.
For interest rates, 84% of the REIT’s loans are hedged, helping to mitigate the continued rise in rates.
MLT has quantified the effects of a 0.25 percentage point increase in base interest rates on its DPU.
DPU will dip by S$0.0001 per quarter or around 0.4% of 4Q FY2023’s DPU.
Hence, a three-percentage-point increase will cause DPU to decline by 5.3%.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
