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Third Quarter Distribution Growth at Mapletree Logistics Trust

The aptly-named logistics facilities real estate investment trust Mapletree Logistics Trust (SGX: M44U) reported its third quarter earnings yesterday evening which saw an increase in distributions.

MLT’s portfolio currently consists of 111 properties spread across 7 markets in Singapore, Malaysia, Hong Kong, China, Japan, South Korea, and Vietnam. The REIT’s entire portfolio is valued at around S$4.1b with its facilities in Singapore and Japan together accounting for the bulk of the portfolio’s value (63% as of 31 March 2013).

Some basic numbers

For the three months ended 31 Dec 2013, the REIT’s gross revenue grew 0.9% year-on-year to S$78.1m. But, an increase in property expenses of 8.4% to S$10.7m actually resulted in MLT’s net property income being 0.2% lower at S$67.4m.

Travelling down its income statement, the REIT’s distributable income (the “real” income that can get paid out to unit-holders in the form of distributions) increased by 7.7% year-on-year to S$45.0m. Distributions per unit (DPU) grew some 7% to 1.84 Singapore cents compared to a year ago.

The REIT’s top-line had grown mainly on the back of positive rental reversions – the adjustment of rental rates to reflect prevailing market conditions – in Singapore and Hong Kong, but there was also negative impacts stemming from a weaker Japanese yen on its Japanese portfolio.

Fortunately though, those negative impacts were mitigated as MLT had “substantially hedged” its Japanese yen-denominated income streams.

Elsewhere, the REIT’s property expenses had grown much faster than gross revenue due to new properties that were acquired during the year, higher property taxes in Singapore, and costs that were related to the conversion of single-tenant properties to multi-tenanted ones.

Distributable income saw an increase partly due to the distribution of the gain from the REIT’s divestment of its 30 Woodlands Loop property. Borrowing costs, which decreased by 23% year-on-year to S$7.46m on the back of lower interest rates on loans and a weaker Japanese yen, also helped contribute to the gains in distributable income.

Operating highlights and the balance sheet

MLT’s properties have managed to maintain a high occupancy rate of 98.4% as of 31 Dec 2013. In addition, the REIT has already managed to renew or replace 84% of the leases (in terms of net lettable area) that would be expiring in the current financial year.

The REIT’s balance sheet has weakend somewhat compared to a year ago as its net debt position (total debt minus total cash and cash equivalents) had increased from S$1.304b to S$1.316b.

What’s next for Mapletree Logistics Trust

The REIT’s management expects demand for logistics facilities in MLT’s markets to “remain robust”, but also warned that “competition for the acquisition of logistics assets is becoming increasingly intense.”

Competitors in the logistics-property space in MLT’s markets – such as Cache Logistics Trust (SGX: K2LU), Ascendas Real Estate Investment Trust (SGX: A17U), and even Global Logistics Properties (SGX: MC0) – have stronger balance sheets with lower gearing ratios (total debt divided by total assets) which could give them more flexibility and financial muscle when competing for acquisitions as compared to MLT. So, that’s something for investors of MLT to note.

Share Gearing Ratio
Cache Logistics Trust 28.9%
Ascendas Real Estate Investment Trust 30.1%
Global Logistics Properties 21.2%
MLT 33.7%

Source: Latest earnings releases from the various shares.

MLT’s managers added that they would also be focusing on active lease and asset management, “especially in Singapore in view of the upcoming supply of new warehouse space in 2014 and the conversion of several single user assets to multi-tenanted buildings.” In particular, the REIT warned that there’s a possibility that occupancy rates for its portfolio might suffer during the transition stage in the conversion of some of its properties.

Property expenses for the REIT is also “expected to increase” as a result of higher term contract rates and costs related to the afore-mentioned conversions.

MLT also touched upon its redevelopment projects such as the Mapletree Benoi Logistics Hub. It obtained its Temporary Occupation Permit in November 2013 and has a 100% lease commitment. Unit-holders can look forward to a positive contribution from the hub toward the REIT’s financials in the next financial year.

Valuation

The REIT’s currently selling for 1.14 times book value at its current price of S$1.04 per unit. MLT’s units also carry a distribution yield of 6.9% based on its DPU for the last 12 months.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.