Mapletree Logistics Trust (MLT) -Dividend Share Price Analysis

Brief Introduction to Mapletree Logistics Trust

In learning how to invest money in Singapore for beginners, it is easier to start with what we know. What we know often refers to what we can see. This includes the malls managed by Capitaland Mall Trust . However, solely focusing on retail reits as sub segment can be too restrictive. Hence, it is ideal to broaden one’s scope to include other types of Reits. One good example will be Mapletree Logistics Trust, which is Singapore’s largest logistic Reit. A Logistic Reit is definitely less glamorous than the glitzy retail Reits, however glamour isn’t one of the reasons why you should invest in a reit. However, it can still provide an attractive return given the correct strategy.

Mapletree Logistics Trust is Singapore’s first Asia Pacific focused logistic Reit. Logistics refer to the process of planning and implementation of the flow of goods and services from point of origin to point of consumption. Mapletree invested in such properties across 8 different Asian Countries. These include Singapore, Hong Kong, Japan, China, Australia, South Korea Malaysia and Vietnam. The reasons why these countries in the Asia Pacific region are great locations to invest in are multifold. Some of them include:

  • Asian Countries have the youngest demographic that is most conducive for economic growth.
  • Asian Countries have the greatest cost advantage when it comes to manufacturing in a global supply chain

10-15 years on, things have changed somewhat. For example, China stopped being the go to country when it comes to cheap manufacturing. It is hence interesting to see how the management distinguish itself by consistently updating its strategy and assessing its effectiveness.

Below is a graph with the current and historic stock price of Mapletree Logistics Trust.

History of Mapletree Logistics Trust

Mapletree Logistics Trust was first listed on the Singapore Stock Exchange with a portfolio of 18 properties. Back then, MLT had exposure in Shanghai, Hong Kong and Singapore, with the intent to expand into Japan, Malaysia and Vietnam. Back then, MLT’s focus was split into 4 tiers

Tier 1: Singapore

Tier 2: Hong Kong, China, Malaysia, Vietnam, Japan

Tier 3: Thailand, India

Tier 4: Indonesia, Philippines, South Korea

Back in 2005, Mapletree’s Business Model looked something like the chart below:

With a cost of debt of 3%, a management and expense fee of 0.85. As the property yield was high at 7%, this provided for a spread of 3.15%.

Corporate Structure and mission

Mapletree Logistics Trust Company Corporate Structure Analysis

Mapletree Logistics is 31%, owned by Mapletree Investments, which itself is a wholly owned subsidiary of Temasek.

Even though Mapletree Investments does not have majority ownership of the REIT it does have management control as it owns the property manager (‘Mapletree Logistics Trust Management’). This setup allows for a more efficient use of capital through the process of capital recycling.

Mapletree Logistics aim to maximise its organic growth through optimising its portfolio. It is also able to achieve inorganic growth through the acquisition of yield and distribution accretive projects. This can be either from the Sponsor’s own pipeline as the Mapletree has the right of first refusal whenever the parent wants to divest a particular development. Else, it can come from external acquisitions, with which the Sponsor can help to finance.

Valuation Techniques to assess attractiveness of Mapletree Logistics Trust

There are many valuation techniques that we can use to judge the attractiveness of a potential investment. These can range from

  1. Stock Price V.S NAV Per Unit
  2. Dividend Yield V.S Net Property Yield
  3. Dividend Yield V.S comparable opportunities
  4. Management’s own Investment Hurdle
  5. Potential for Strong Rental Reversion
  6. Potential for Further Cap Rate Compression

Stock Price V.S NAV Per Unit

Given that a REIT is in some sense its portfolio of properties, some will argue that a fair value to pay for a single shareholding is the NAV per unit. The NAV is calculated by first taking total assets and deducting by total liabilities. This will include the subtraction of both long term and short term debt. There after, the NAV is deducted by the total number of units outstanding to arrive the NAV per unit. For MLT, as of 2018, the NAV per unit is 1.17.

With a share price of 1.72 and an NAV of 1.17, market has priced in its expectations of high growth and the conviction that that the investment properties under MLT will continue to grow in value. This raises the question of whether the market is right in pricing in this growth.

Dividend Yield V.S Net Property Yield

To know if Mapletree Logistic Trust is attractive at prevailing prices, we will start from our trusty REIT Metric which is known as divided yield. To know more about how to calculate dividend yield  and why it is important you can go to Real Estate Investment Trust (REIT) Singapore Dividend Yield.

Mapletree Logistic Trust had a distribution yield of 7.941 cents in FY 2019. If we take the current share price of SGD 1.72 (as of 6th December 2019), we are looking at a dividend yield of around 4.6%.

Dividend Yield V.S Net Property Yield

To know if Mapletree Logistic Trust is attractive at prevailing prices, we will start from our trusty REIT Metric which is known as divided yield. To know more about how to calculate dividend yield  and why it is important you can go to Real Estate Investment Trust (REIT) Singapore Dividend Yield.

Mapletree Logistic Trust had a distribution yield of 7.941 cents in FY 2019. If we take the current share price of SGD 1.72 (as of 6th December 2019), we are looking at a dividend yield of around 4.6%.

This is low relative to the property yield of 5.93% shown below. Based on this measure, it may seem that the stock is too expensive at 4.6% dividend yield as the investor is better off buying the entire investment portfolio and renting it out.

Management’s own Investment Hurdle

One good measuring yardstick is to look at the valuation assumptions that the company made in valuing the investment properties. The valuation assumption includes the capitalisation rate that the reit uses. It will also include the discount and terminal rates that are used in valuing the property.

Valuation tool 2018 2017
Capitalisation Rate 5.75 – 7.25 6.00 – 7.25
Discount Rate 7.75 7.75

Capitalisation Rate, also know as cap rate is the ratio of Net Operating Income and Market Value. Knowing that the low bound of the cap rate that management has set for investment is roughly equivalent to the property yield suggest that it may make sense for management to sell its existing portfolio and invest in higher yielding assets.

Dividend Yield V.S comparable opportunities

To know if Mapletree Logistic Trust is attractive at prevailing prices, we will start from our trusty REIT Metric which is known as divided yield. To know more about how to calculate dividend yield  and why it is important you can go to Real Estate Investment Trust (REIT) Singapore Dividend Yield.

Mapletree Logistic Trust had a distribution yield of 7.941 cents in FY 2019. If we take the current share price of SGD 1.72 (as of 6th December 2019), we are looking at a dividend yield of around 4.6%. This will be slightly more than the 4% off your CPF Special account.

While it may look more attractive from a yield perspective, do note that the CPF special account return is guaranteed whereas return on your investment on a REIT is not guaranteed and can be lower than the dividend yield if you suffer a capital loss, that is to sell lower than the 1.72 entry price that you bought it at.

Properties of Mapletree Logistics Trust

Mapletree Logistics has a large portfolio of 141 warehouses in 8 geographic markets. They are South Korea, Japan, China, Hong Kong, Vietnam, Malaysia, Australia and Singapore.

Gross Revenue by Geographic Contribution

Portfolio breakdown by Asset Use

Most of Mapletree Logistics Revenue still comes from its warehouses in Singapore (34.7%) and Hong Kong (23.7%). This means that Mapletree Logistic is rather concentrated in both economies and is subjected to the macroeconomic conditions that affects the two economies. While we like the strong local presence in Capitaland Commercial Trust‘s case, we will need to have a closer look at concentrated portfolio of Mapletree Logistics and how macro uncertainties may affect future revenue. Further, a logistic reit like Mapletree Logistic is unique in that they place a strong emphasis on whether an asset is Single User or Multi Tenanted. This is because warehouses tend to be designed with unique specifications so Single user assets are often more difficult to lease to other tenants, compare with multi tenanted buildings.

Even though there is a significant percentage of single user tenancy in Mapletree Logistic Trust’s Portfolio, it is mitigated by the fact that most of the leases that are due in the next three years are from multi tenanted buildings.

Further, mapletree logistics has been able to consistently achieve more than 95% occupancy rate in all the 8 markets that it operates in. With a positive revenue reversion of 1.8%, it is safe to say that Mapletree Logistics has a good quality portfolio.

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Financials

Mapletree Logistic’s leverage ratio remains conservative at 37%, well below the 45% MAS Reit Rule. That said, this ratio has not considered the perpetuals which Mapletree logistics has issued. Perpetuals are given partial equity treatment and are thus excluded from the debt/asset calculation.

However, whats really important is the debt maturity schedule. Our earlier post about how leverage can go wrong will have shown how a bullet payment can cripple a company. Hence it is also important to make sure that the company has a well termed out debt maturity schedule. As Mapletree Logistics Trust only has 20% of its debt due in the next three years, it is reasonable to assume that it will not run into any debt repayment problems in the short term.

Conclusion

Mapletree Logistics has a strong investment portfolio backed by a strong growth story. Even though the dividend yield at 4.6% looks reasonably attractive given the opportunity set that investors have, it does look low compared to property yield and cap rate.