I own all the three Mapletree REITs. Like many other REITs, the past two years have been challenging for them, due to increasing borrowing cost and operating expenses. In general, I would say that they have handled the situations well, resulting in pretty stable DPU. That is also true for MPACT if you just look at it post merger.
Mapletree Logistics Trust
Despite the challenges in China, the group continues to enjoy positive rental reversion for the past 7 quarters which probably help to mitigate the increasing borrowing cost and negative forex exchange.
It’s amazing that they can keep their interest rate at around 2.5% over the past 7 quarters. Probably going to see it creeping up in the coming quarters as they replace old hedges with new one. However, I don’t expect a big jump as only 9% of the the debt is required to be refinance in the coming year.
Also, they have guided every 25 bps increase, DPU will only drop by about 0.01 cent per quarter. So assuming the interest rate increases to 3.5%, then DPU will drop by around 0.04 to 0.05 cents, and that is less than a 2.5% drop from the latest amount.
One might argue that the DPU is propped up by divestment gain, but as I mentioned before, MLT’s DPU has always been speckled by divestment gain over the years. And I would say it’s only them that can do it due to the large number of properties that they have. Hence they are able to keep rejuvenating their portfolio.
Mapletree Industrial Trust
Similar to MLT, Mapletree Industrial Trust has been getting positive rental reversion for this year. I could not find the the rental reversion information on their presentation, so am not sure of the situation in the previous year.
While occupancy is still strong, it seems to be trending downwards over the past year. Hopefully, it doesn’t get worse from here. Operating expenses and borrowing cost have definitely gone up but that seems to have stabilises.
With 15% of debt to refinance in the coming year, the impact on interest rate should be muted as long as they can keep up with the top line.
Mapletree Pan Asia Commercial Trust
For MPACT, I am just going to look at its performance after merger. They are definitely impacted by the jump in borrowing cost. However, with the improved occupancy and positive rental reversion, distributable income and DPU are rather stable over the past 4 quarters.
While they are done with refinancing this year, there’s 21% of debt to refinance for the next year. So their interest rate might still creep up next year. They are looking into swapping more HKD loans into CHN to capitalise on interest rate benefits but there’s probably a limit how much they can swap.
Hopefully, they can sustain the occupancy and continue to get positive rental reversion to mitigate any further increase in borrowing cost.
Buy? Hold? Sell?
I continue to be impressed by the management of both Mapletree Logistics Trust and Mapletree Industrial Trust. Assuming similar performance for Q4, MLT’s annual DPU will have continue to increase during this challenging period! MIT’s DPU is likely to continue its downwards trend but looking back, it will still be higher than pre-covid period! As for MPACT, it is just slightly more than one year post merger, so I reserve my judgement on it. I had reduced my stake last August and am comfortable holding on to my current stake.
Despite the pause in the rate hike, I do not think that there will be a fast recovery in REITs. For the next financial year, I am expecting a flattish or slightly lower DPU which is something I can live with. With my recent purchase of Nikko-AM Straits Trading Asia ex Japan REIT ETF last November and December, REITs take up about 30% of my portfolio now. So I will just continue to hold on to my current stake.
The reporting season begins this week! Four of my counters are reporting their latest results this week: Frasers Centrepoint Trust, Mapletree Logistics Trust, Mapletree Industrial Trust, Intuitive Surgical and Microsoft.
First off the block is Frasers Centrepoint Trust. Initially, I have wanted to combine the report with MLT and MINT, but since I was able to listen to the audio cast of investors’ briefing and jot down my thoughts last night, I decided to publish this short post first.
It is another steady quarter from the pure Singapore retail trust. There’s really nothing not to like in terms of its operating performance. Great occupancy with increasing traffic and tenant sales (adjusted), and general upwards trajectory of suburban prime retail rents. While no number is shared on rental reversion, CEO Richard mentioned that demand is strong and hence they do have pricing power.
The strong operating performance will probably be negated by increasing cost of borrowing. The good news shared during the investors’ briefing is post December FOMC, the group has entered new hedges at a rate lower than 4%. That increases the percentage of hedges to fixed rate interest from 63% to 72%.
This might not bring down the overall rate as compared to FY2023, but it does mean that the cost of borrowing is stabilising. Coupled that with the strong operating performance, there should not be nasty surprise in terms of DPU when announced in the next quarter.
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