Is Mapletree Logistics Trust (SGX: M44U) An Attractive Investment Right Now?
 
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Is Mapletree Logistics Trust (SGX: M44U) An Attractive Investment Right Now?

Sudhan P
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At the time of writing, Mapletree Logistics Trust‘s (SGX: M44U) units are going at S$1.81 each.

At that unit price, Mapletree Logistics Trust is valued at a price-to-book (PB) ratio of 1.5 and a distribution yield of 4.5%. 

At a glance, the REIT looks overvalued. But is that really the case? 

Let’s find out using my 10-step guide to pick the best Singapore REITs.

How to pick the best REITs

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

  1. Growth in Gross Revenue and Net Property Income
  2. Growth in Distribution Per Unit
  3. Property Yield of Between 5% and 9%
  4. Gearing Ratio of Below 40%
  5. Interest Coverage Ratio of Above 5x
  6. Healthy Portfolio Occupancy Rate
  7. Positive Rental Reversions
  8. Presence of Growth Prospects
  9. Acceptable Price-to-Book Ratio
  10. Distribution Yield of Above 5%

Business Background

Before we dive into analysing Mapletree Logistics Trust, let’s take a quick look at what its business is about.

Mapletree Logistics Trust is the first Asia-focused logistics REIT in Singapore listed in 2005.

As of 31 December 2019, the REIT had a portfolio of 143 logistics assets in Singapore, Hong Kong, Japan, Australia, China, Malaysia, South Korea, and Vietnam. In all, the assets were valued at S$8.3 billion, with the majority of assets in Singapore.

Mapletree Logistics Trust’s assets are mainly located in key gateway cities or logistics hubs with direct access to large catchments of growing consumer markets. This gives the REIT an attractive proposition.

The REIT’s sponsor, Mapletree Investments, had a 31.6% stake in Mapletree Logistics Trust, as of 30 September 2019. 

1. Gross Revenue and Net Property Income (NPI) Check

Check for: Increasing gross revenue and NPI

Mapletree Logistics Trust has a financial year that ends on 31 March each year. 

The following is a table showing how the REIT’s gross revenue and NPI have grown from FY14/15 to FY18/19:

 FY14/15FY15/16FY16/17 FY17/18FY18/19Compound Annual Growth Rate (CAGR)
Gross revenue
(S$' million)
330.1349.9373.1395.2454.38.3%
Net property income
(S$' million)
277.4290.9312.2333.8389.58.9%

As seen from the table, both gross revenue and NPI have climbed consistently on a year-on-year basis.

Verdict: Pass

2. Distribution Per Unit (DPU) Check

Check for: Increasing DPU

The REIT’s DPU has also been increasing over the last five years.

 FY14/15FY15/16FY16/17 FY17/18FY18/19CAGR
Distribution per unit (Singapore cents)
7.5007.3807.4407.6187.941 1.4%

Over the longer term, since its listing, Mapletree Logistics Trust’s DPU has risen from 1.85 Singapore cents.

Mapletree Logistics Trust DPU since listing
Source: Mapletree Logistics Trust 2019 AGM presentation

Verdict: Pass

3. Property Yield Check 

Check for: Property yield of between 5% and 9%

For FY18/19, Mapletree Logistics Trust had an NPI of S$389.5 million and a portfolio value of S$7.69 billion. The figures translate to a property yield of 5.1%.

Mapletree Logistics Trust passes this criterion as well.

Verdict: Pass

4. Gearing Ratio Check

Check for: Gearing ratio below 40%

As of the end of 2019, Mapletree Logistics Trust’s gearing ratio stood at 37.5%, which is well below the regulatory limit of 45% and my threshold of 40%.

Mapletree Logistics Trust gearing ratio as of 31 Dec 2019
Source: Mapletree Logistics Trust 3Q FY19/20 earnings presentation

Verdict: Pass

5. Interest Coverage Ratio Check

Check for: Interest coverage ratio above 5 times

Mapletree Logistics Trust’s interest cover ratio was 5.2 times for its latest quarter, which gives this criterion a pass too. 

Mapletree Logistics Trust interest cover as of 31 Dec 2019
Source: Mapletree Logistics Trust 3Q FY19/20 earnings presentation

Verdict: Pass

6. Portfolio Occupancy Rate Check

Check for: Healthy portfolio occupancy rate

Mapletree Logistics Trust enjoys a healthy portfolio occupancy rate. 

As of 31 December 2019, the REIT had a portfolio occupancy of 97.7%, with full occupancies in the markets of Japan, Australia, Malaysia and Vietnam.

The latest occupancy rate is a slight improvement from the figure at end-September 2019 of 97.5%. The increase was due to higher occupancy in Singapore, partially offset by lower occupancies in South Korea and China.

Mapletree Logistics Trust occupancy rate as of 31 Dec 2019
Source: Mapletree Logistics Trust 3Q FY19/20 earnings presentation

Verdict: Pass

7. Rental Reversion Check

Check for: Positive rental reversions

Mapletree Logistics Trust’s average rental reversion for leases renewed or replaced in FY18/19 was 2% while for the third quarter of FY19/20, it was 1.2%.

Verdict: Pass

8. Growth Prospects Check

Mapletree Logistics Trust’s manager has a “yield+growth” strategy to deliver long-term total returns to unitholders. 

The REIT’s FY18/19 annual report explains what the strategy means:

“In line with our mission to provide Unitholders with competitive total returns, the Manager follows a “Yield + Growth” strategy which focuses on the two key areas of optimising yield on existing assets and augmenting growth through acquisitions or development projects which offer attractive returns. Both areas are underpinned by a prudent risk and capital management approach.”

Mapletree Logistics Trust growth strategy
Source: Mapletree Logistics Trust 2019 AGM presentation

On the growth-through-acquisitions front, Mapletree Logistics Trust completed the purchase of seven logistics properties during the FY19/20 third-quarter. The assets will fully contribute to the REIT’s distribution from the fourth quarter. 

The properties, which have a 100% committed occupancy rate, are located in Malaysia, Vietnam, and China.

Mapletree Logistics Trust acquisition of seven logistics properties
Source: Mapletree Logistics Trust 3Q FY19/20 earnings presentation

The acquisitions are accretive to DPU and net asset value for the REIT.

Over the long-term, Mapletree Logistics Trust can ride on the growth of e-commerce and domestic consumption, which brings strong demand for logistics space that can be fulfilled by the REIT. 

Around 75% of Mapletree Logistics Trust’s gross revenue base is derived from consumer-related sectors, such as food and beverage, fashion and apparel, and e-commerce. The REIT’s exposure to these sectors adds resiliency to its portfolio and positions it for long-term growth.

Verdict: Pass

9. Price-to-Book Ratio Check

Check for: Acceptable price-to-book ratio 

At Mapletree Logistics Trust’s unit price of S$1.81, it is valued at a PB ratio of 1.5x.

Over the past five years, its average PB ratio stood at 1.0x.

With a PB ratio that’s 50% above the mean, Mapletree Logistics Trust certainly looks expensive. 

Verdict: Fail

10. Distribution Yield Check

Check for: Distribution yield to be above 5% 

At Mapletree Logistics Trust’s unit price of S$1.81, it has a distribution yield of 4.5%, which doesn’t look attractive to me for the risk taken on. 

Verdict: Fail

The Final Verdict

Mapletree Logistics Trust has a final score of 8/10.

The REIT is attractive in terms of having:

  • Strong gross revenue, NPI, and DPU growth;
  • Healthy portfolio occupancy;
  • Positive rental reversion;
  • Strong growth prospects.

However, Mapletree Logistics Trust’s high PB ratio and low distribution yield keep me on the sidelines for now.

Therefore, I’ll be putting Mapletree Logistics Trust on my watchlist. 

What Are Your Thoughts on Mapletree Logistics Trust?

Come discuss them and more in our Seedly Community under a page specifically dedicated to Mapletree Logistics Trust (SGX: M44U)

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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