Mapletree Logistics Trust (SGX: M44U) is an Asia-focused logistic REIT listed in Singapore. It has a portfolio valued at S$6.2 billion which consists of 124 assets located across Asia, including Singapore, Hong Kong, Japan, Australia, China, Malaysia, South Korea and Vietnam.
Since its listing in 2015, Mapletree Logistics Trust has grown at an impressive rate from its initial portfolio of just 15 properties in 2005. However, the future may not always mirror the past.
To determine if the trust continues to have the potential to grow its distributable income in the future as it did before, I will take a look at three key aspects of the trust: 1) its gearing ratio; 2) potential positive asset revaluations; and 3) potential for organic income growth.
The gearing ratio is the amount of debt a REIT has in comparison with its assets. The lower the gearing ratio, the more debt the REIT can take on in the future to fund acquisitions.
As of 31 December 2017, Mapletree Logistics Trust had a gearing ratio of 37.8%. Although this is still some way away from MAS’ regulatory gearing limit of 45%, it is still considered quite high among REITs in Singapore.
As a point of comparison, other logistics trusts in Singapore such as Frasers Logistics and Industrial Trust (SGX: BUOU) and EC World Real Estate Investment Trust (SGX: BWCU) have gearing ratios of 31% and 29% respectively. Mapletree Logistic Trust’s comparatively higher gearing ratio may limit the trust’s capacity to make debt-funded acquisitions in the future.
Potential for positive asset revaluations
Asset revaluations may not lead directly to increased distributions, but it is important in improving the balance sheet of a REIT. The larger the asset base, the more debt the REIT can take on in the future to fund its acquisitions. The REIT can also realise the gain when they decide to sell its properties in the future.
In the last full financial year ended 31 March 2017, Mapletree Industrial Trust’s portfolio had a revaluation gain of S$39 million. With most of its properties sitting on long land tenures and as the growing need of logistics as e-commerce develops, I am optimistic that the REIT’s strong portfolio of logistics real estate can continue to appreciate.
Asset enhancement initiatives to drive organic growth
Finally, asset enhancement initiatives can increase the REIT’s rental income on its existing properties. Mapletree Logistics Trust has done well in this regard as they have a history of continuously investing and improving their current portfolio.
Most recently, the trust completed the redevelopment of one of its properties in Singapore, increasing the gross floor area by 80% in the process. It has further plans to expand the gross floor area of another of its China properties by 140%, which will be fully completed by 2020.
The full effect of these initiatives will only be felt once redevelopment works have been completed and will most likely boost distributions to unitholders.
The Foolish bottom line
Despite a high gearing ratio, Mapletree Logistics Trust has a few catalysts in place that might improve its distributions in the future. Firstly, it has a well-diversified and strong portfolio of assets that will likely appreciate. Secondly, the redevelopment projects will also have the effect of increasing its net property income on its existing portfolio.
All things considered, I believe that there are enough reasons to believe that Mapletree Logistics Trust has the potential to continue to reward unitholders over the next few years.
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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 Jeremy Chia owns units in EC World REIT.