The earnings season is starting with a bang, and Mapletree Logistics Trust (SGX: M44U), or MLT, is the first REIT to report its results in 2023.
The industrial REIT has just reported its fiscal 2023’s third quarter (3Q2023) earnings ending 31 December 2022.
Investors are closely eyeing the REIT sector due to a combination of negative factors such as inflation and surging interest rates.
With higher overall costs, it’s natural to worry whether REITs can maintain or even increase their distribution per unit (DPU).
MLT has done admirably as it posted a slightly higher year on year DPU while also maintaining healthy operating metrics.
Here are five salient highlights from the logistics REIT’s latest quarterly earnings.
1. A resilient set of financials
Gross revenue rose 8% year on year for 3Q2023 to S$180.2 million, underpinned by accretive acquisitions made in the previous fiscal year and 1Q2023.
Net property income (NPI) increased 7.3% year on year to S$157.2 million and DPU inched up 1.9% year on year to S$0.02227.
The number of properties in MLT’s portfolio has also risen from 167 in 3Q2022 to 186 in 3Q2023.
For the first nine months of the fiscal year (9M2023), MLT saw gross revenue jump 11.3% year on year while NPI improved by 10.4% year on year to S$480.4 million.
DPU for 9M2023 came in at S$0.06743, up 3.4% year on year.
The industrial REIT’s trailing 12-month DPU stands at S$0.09011, giving its units a trailing distribution yield of 5.6%.
2. Healthy operating metrics
MLT continued to report a healthy set of operating metrics.
Its portfolio occupancy as of 31 December 2022 stood high at 96.9%, inching up from the 96.4% reported three months earlier.
For 3Q2023, the REIT saw a positive rental reversion of 2.9%, continuing its track record of healthy positive rental reversions over the past three years.
MLT’s weighted average lease expiry (WALE) by net lettable area stood at 3.2 years, with 7.5% of leases coming due in this fiscal year.
The REIT is well-diversified in its tenant base, with its top 10 tenants contributing around 23.2% of gross revenue.
Its top three tenants contribute 10.6% of gross revenue for 3Q2023.
3. Weaker exchange rates
Although MLT posted healthy growth in revenue and NPI for 3Q2023, the REIT faced headwinds in the form of weaker exchange rates.
The depreciation of foreign currencies, namely the Japanese Yen, South Korean Won, Chinese Renminbi and Australian dollar, against the Singapore dollar, led to weaker rental income.
Fortunately, MLT relied on foreign currency forward contracts to hedge some of this impact, thus mitigating the downside for the REIT.
DPU would have increased by 8.6% year on year rather than just 1.9% if the effects of currency depreciation were removed.
4. Finance expenses are creeping higher
Higher interest rates have raised MLT’s borrowing costs significantly, with the logistics REIT seeing a 36.2% year on year jump in finance costs to S$34.8 million.
On a 9M2023 basis, borrowing costs were 31.2% higher year on year at S$99.2 million, and could continue to rise should interest rates continue their ascent.
The REIT’s average annualised interest rate crept up from 2.5% in 2Q2023 to 2.6% in the current quarter, while aggregate leverage inched up from 37% to 37.4% over the same period.
Fortunately, only 17% of the REIT’s debt is due for refinancing in the current and next fiscal year ending 31 March 2024.
The REIT manager has also adequately buffered against higher rates by having 83% of the REIT’s total loans hedged or drawn in fixed rates.
Every 0.25 percentage point increase in base interest rates will lower MLT’s DPU by S$0.0001 or around 0.4% of 3Q2023’s DPU of S$0.0227.
5. Portfolio rejuvenation
MLT continues to execute initiatives to recycle capital and enhance its portfolio.
During 3Q2023, it announced the divestment of three properties in Singapore and Malaysia for around S$37.3 million as they have limited development potential.
All three properties were sold at a premium to their valuation, and the cash will then be recycled into modern, high-specification facilities offering better prospects.
MLT also has an ongoing redevelopment project at 51 Benoi Road to expand the property’s gross floor area (GFA) by 2.3 times with completion expected in 1Q2025.
Elsewhere, the REIT also plans to amalgamate two land parcels in Malaysia with its existing assets and redevelop the location and increase the GFA by five times.
This project should be completed by 1Q2027.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
