The beauty of owning REITs is their ability to pay out a consistent dividend, thereby acting as a source of passive income flow.
Better yet, some REITs can steadily increase their distribution per unit (DPU), providing income-seeking investors with higher cash inflows over time.
Mapletree Logistics Trust (SGX: M44U), or MLT, is a good example.
The logistics-focused REIT, which owns 163 properties spanning countries such as Singapore, Japan, Australia and Hong Kong, has displayed a good track record of increasing its DPU.
Over the last five years, its DPU has risen by 12.8% from S$0.0738 to S$0.08326.
Given the REIT’s track record, can investors expect even more DPU growth in future?
Resilience in the face of adversity
The REIT has also proven itself resilient during the current pandemic, with overall occupancy remaining high at 97.8% as of 30 June 2021.
It helps that MLT is backed by a strong sponsor — Mapletree Investments Pte Ltd, itself a unit of investment company Temasek Holdings.
For the first quarter of its fiscal year 2022 (1Q2022) ended 30 June 2021, the REIT reported a 23.7% year on year jump in gross revenue to S$163.7 million.
This increase was supported by higher revenue from existing properties as well as accretive acquisitions completed in the prior fiscal year.
Net property income (NPI) rose 21.3% year on year to S$144.2 million, while DPU grew up by 5.7% year on year to S$0.02161.
If divestment gains from a year ago are excluded, the increase in DPU would have been 10.3% year on year.
These healthy numbers demonstrate the stability of the REIT and unitholders can rest assured that its portfolio metrics remain healthy.
MLT has also displayed a strong track record of acquisition-led growth over the years.
For context, on 30 September 2016, the REIT’s total assets under management (AUM) stood at S$5.3 billion.
Fast forward nearly five years later, and the logistics REIT’s asset base has doubled to S$10.7 billion.
During this period, the number of properties has increased from 124 to 163.
MLT has been aggressively acquiring properties throughout this period, starting with the purchase of four logistics properties in Victoria, Australia, in December 2016.
In August 2017, it purchased a logistics hub in Hong Kong.
Throughout 2018 and 2019, the REIT added five modern ramp-up logistics properties in Singapore and a logistics property in Australia, respectively.
And even throughout the pandemic, MLT continued its acquisition spree, snapping up a string of properties in China, Malaysia, Vietnam, South Korea and Australia.
The REIT even made its maiden foray into India with the acquisition of two modern logistics properties in March this year.
Active capital recycling
Investors should note that MLT has not only been actively acquiring properties around the world, but it has also been selectively divesting properties that are non-core to its portfolio.
This active capital recycling enables the REIT to realise capital gains on older assets while rejuvenating its portfolio to keep up with the times.
Some examples include the divestment of a Malaysian warehouse cum office building in December 2017 and a bonded logistics facility in Shanghai in December 2019.
Adequate debt headroom
Next, we look at the REIT’s current debt level and cost of financing.
MLT’s aggregate leverage stood at 38.2% as of 30 June 2021, and the weighted average cost of debt remained low at 2.2%.
The interest cover ratio remained healthy at 5.2 times.
The REIT’s gearing level leaves more room for it to borrow as it is still well below the 50% borrowing limit set by Singapore’s central bank.
This debt headroom provides the REIT with the financial leverage to fund yield-accretive acquisitions to boost its DPU.
Get Smart: Room for DPU growth
MLT has demonstrated its ability to grow its DPU steadily over time and also has a strong sponsor that should give investors peace of mind.
The REIT manager continues to actively execute acquisitions even up till this month, with the acquisitions of a logistics property in Melbourne just announced along with a potential acquisition of a property in Malaysia through an asset-backed securitisation structure.
However, one risk to watch out for is the issuance of new units to fund acquisitions.
MLT has a history of issuing large amounts of new units that may dilute DPU growth should the acquisitions not pan out well.
Despite this, unitholders have enjoyed rising distributions in the last five years, and this looks set to continue in the near future.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.