With a large number of REITs listed on the local bourse, comparisons are inevitable as investors search for the best way to allocate their capital and park their funds for retirement. Even within specific REIT sectors (such as retail, industrial or hospitality), there are plenty of choices available which may cause investors to scratch their heads.
Zooming into the industrial REITs sub-sector, I decided to compare two popular REITs – Mapletree Logistics Trust (SGX: M44U), or MLT, as well as Frasers Logistics & Industrial Trust (SGX: BUOU), or FLT.
As a quick recap, MLT is an Asia-focused logistics REIT that has a portfolio of 137 properties located in Singapore, Hong Kong, Japan, Australia, South Korea, China, Malaysia and Vietnam. MLT’s properties are worth S$7.9 billion as of 30 June 2019.
As for FLT, it is a REIT with a portfolio of 81 logistics and industrial properties worth around A$2.9 billion as of 30 June 2019. These properties are located in major logistics and industrial markets in Australia, Germany and the Netherlands.
Let’s look at three aspects to determine which of these REITs is the better dividend share.
Distribution per unit (DPU) growth is a key variable to look at to assess if one REIT is better than another. As FLT has only been listed for barely three years, I also looked at the comparable period for MLT. FLT has shown some year-on-year growth in FY 2018, but for FY 2019, an enlarged base of units (issued due to a pending acquisition) and a weaker Australian dollar weighed on DPU.
MLT, being more diversified in terms of country exposure, was not adversely affected by currency movements. Hence, MLT shows a more consistent pattern of DPU increases over the last three years.
The next aspect I looked at was dividend yield, as this represents the return per dollar of capital allocated that the investor can expect to receive as a form of passive income. Though a higher dividend yield will always seem desirable, investors also have to be wary of REITs which trade at dividend yields that are deemed “too high”, as this may signal an impending cut in DPU.
For MLT, using FY 2019’s historical annual dividend, its dividend yield stands at around 5.1%. FLT’s annualised dividend yield based on H1 FY 2019 is around 5.9%. FLT, therefore, wins this round as it has a higher dividend yield than MLT.
Future growth in dividends
The third and final aspect I looked into was the potential to grow DPU in future, as a REIT with a lower propensity for borrowing to make acquisitions, or with less opportunity for asset enhancements, makes a poor candidate in terms of DPU growth over time. I looked at both opportunities and gearing levels for both REITs.
MLT had a gearing level of 36.8% and a cost of borrowing of 2.8% as of 30 June 2019, while FLT had a gearing level of 35.4% and a cost of borrowing of 2.4% for the same period. Note that both REITs have strong sponsors in Mapletree Investments Pte Ltd (for MLT) and Frasers Property Limited (SGX: TQ5) for FLT.
FLT has just completed its acquisition of 12 prime logistics properties, and this transaction is expected to be DPU-accretive.
A difficult decision
It was a tough decision to make between the two as each REIT has strong merits, but FLT won out in the end due to a slightly lower gearing and also a pending acquisition which should bump up its DPU. Investors should note, however, that there are continued currency headwinds for FLT that may dampen its DPU growth somewhat.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Mapletree Logistics Trust. Motley Fool Singapore contributor Royston Yang owns shares in Frasers Logistics and Industrial Trust.