For beginners learning to invest their own money in Singapore, it is beneficial to keep a keen eye on the acquisitions and divestments done by management. This is especially true for Real Estate Investment Trust (Reits), where making distribution per unit accretive acquisitions is core to its success. Making a wrong acquisition can destroy the REIT’s entire business, especially when it takes on too much additional leverage.
Talking about Mapletree Logistic Trust’s Portfolio, they have recently proposed to acquire a logistics centre in Kobe. If approved, the property will become part of its existing portfolio. As it stands, Mapletree Logistics is a logistic reit with a diversified portfolio across various geographies; Singapore (37.4%), Hong Kong (25.9%), Japan (10.2%), China (5%) and others.
The Property
Mapletree Kobe Logistics Centre is a 4 storey double ramp facility with a Net Leasable area of 84, 783 sq metre. It is currently fully leased (occupancy rate of 99.7%)with an implied net property income yield of approximately 4%. NPI is slightly on the low side given that the npi yield for mapletree logistic trust is around 4.7%. The weighted average lease expiry is 4.2 years. The property is on freehold land and has an agreed property value of approximately SGD 276 million.
Transaction Rationale
The Mapletree Kobe Logistic Centre is a good fit for Mapletree Logistics. At a portfolio level, it helps Mapletree Logistics achieve higher geographic diversity. Post the acquisition, Japanese logistic centers will increase from being 10% of total gross revenue to 12% of gross revenue. Though the shift is considered relatively small, it does help in reducing the large reliance on its Singapore Assets.
Increasing its exposure in Japan, is a positive for Mapletree Logistics. This is because Japan is the second largest e-commerce market in Asia Pacific. Hence, buying a warehouse in Kobe, part of Greater Osaka, will help Mapletree Logistic to get a piece of that growth pie. In addition, the vacancy rate for logistic properties in Greater Osaka due to decreasing supply and high net absorption.
Key to the e-commerce supply chain is the proximity of the logistic centre to the end consumer, also known as last mile delivery. By being just 60 minutes away from central Osaka, Kobe Logistic Centre can serve a larger consumption zone of up to 23 million people.
Transaction Details
The entire transaction will amount to about 276.1 million, of which 271.8 million will be the value of the property while the rest will be acquisition fees and other miscellaneous expenses.
To fund the transaction, Mapletree Logistics Trust will be utilising its JPY debt Facilities. The reason for using its Yen denominated debt facilities is so that it can achieve a natural foreign exchange hedge.
That said, as it will be financing the acquisition through debt, leverage will increase from 37.1% to 39%. This is still well within the MAS stipulated 45% debt/asset limit, thereby leaving the reit sufficient headroom for future acquisitions. This is critical for the Reits Capital Recycling plans as well.
Conclusion
All in all, the acquisition is a mild positive for the Reit. While the npi yield is slightly lower that the entire portfolio, the acquisition does provide meaningful diversification away from Singapore and China. Due to its small size, Singapore is not a meaningful market for an e-commerce logistic play. On the other than, China is mired in a series of influenzas that have seen a big disruption in transportation and logistics.
