Can the Dividend Growth at Mapletree Logistics Trust Continue? Part 1

Mapletree Logistics Trust (SGX: M44U) has outperformed in the past six plus years. The share price recorded returns of about 254% from 1 January 2009 to the closing price yesterday (note: 20 January 2015). By comparison, the capital gain returns of the SPDR STI ETF (SGX:ES3), a proxy for the Straits Times Index (SGX:^STI), was 80% for the same duration.

Mapletree Logistics is a real estate investment trust (REIT) that owns 117 logistics properties around Asia with 408 diverse set of tenants. Being a shareholder of a REIT gives you partial ownership to all the real estate that it owns. As per the Monetary Authority of Singapore (MAS), REITs are mandated to distribute at least 90% of its profits as dividends to enjoy tax transparency. I also wrote about a few pointers for picking REITs here.

Over the past six plus years between 2009 and 2014, Mapletree Logistics has distributed a steady dividends totaling 40 cents per share.

Financial Year Distribution per Unit (Singapore cents)
2009 5.91
2010 6.09
2011/2012 8.24
2012/2013 6.86
2013/2014 7.25
First nine months of 2014/2015 5.65

Source: REIT’s Earnings Presentation; 2009 and 2010 follows calendar year; FY 2011/2012 covers 15 months

While the returns from Mapletree Logistics has been uplifting — as Foolish investors, we should look behind the curtains to understand how sustainable the dividends are, and how it can grow.

A closer look

To get a sense of the resilience of the property portfolio, we can look at the gross revenue by property of the trust.Mapletree MLT - 1

Source: REIT Earnings Report; 2009 and 2010 follows calendar year; FY 2011/2012 covers 15 months

Total gross revenue for the financial year ended 31 March 2014 (FY13/14) was $310.7 million. This was up 50% from $206.7 million in gross revenue for the financial year ended 31 December 2009 (FY2009). The outsized growth in Mapletree Logistics’ share prices compared to its revenue growth – over the same period – seems to indicate that the share price outperformance benefited from low valuations in the past.

For FY13/14, Singapore contributed 46% of total gross revenue, followed by Japan and Hong Kong with 21.4% and 13.6% respectively. When it comes to gross revenue growth over the past five financial years, the majority of it came from revenue expansion in Singapore, Japan and South Korea.

Mapletree MLT - 2

Source: REIT Earnings Presentation and Annual Report; 2009 and 2010 follows calendar year; FY 2011/2012 covers 15 months

The graph above shows the number of properties by country. Coupling this information with the graph on revenue by country together, we can see that the gross revenue growth in Japan and South Korea benefitted – in part – from the growth in number of properties. Properties in Singapore, on the other hand, may have benefited from a measure of organic growth.

Mapletree MLT Slide

Source: REIT Earnings Presentation

The graph above is to remind Foolish investors that we should also be mindful of the cyclical nature in the logistic warehouse business. There is a possibility that warehouse occupancy could shrink in the future due to lower demand or excessive warehouse supply. And if warehouse occupancy shrinks, revenue might follow suit. As of 31 December 2014, the overall portfolio occupancy for Mapletree Logistics was 96.9%.

Foolish summary

The exercise above is to look at the sales alone. As a next step, we should observe if the topline growth trickles down to the bottom-line for it to sustain its growth in share price.

But, that’s for the next article. You can read on here.

Mapletree Logistics Trust last traded at S$1.24 yesterday. This translates to a historical price-to-book ratio of 1.27 and a distribution yield of around 6.1%.

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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 contributor Chin Hui Leong owns shares in Mapletree Logistics Trust.