Following Wednesday’s farewell to Mapletree Logistics Trust (SGX: M44U) CEO Ng Kiat, Mapletree Industrial Trust (SGX: ME8U), or MINT, bid farewell to their strong CEO Tham Kuo Wei on Thursday’s AGM.
Similar to the previous AGM, Kuo Wei delivered another informative presentation and answered most of shareholders’ questions with clarity. His deep understanding of the business shone through as he not only delivered the information on the slides but also proactively addressed potential audience questions by elaborating on key points.
Here are my takeaways from the AGM, based on my notes and opinions (not verbatim). For full details, check the official documents (link below).
Osaka Acquisition: Steady Income, Portfolio Diversification, and Lower Borrowing Costs
MINT’s maiden acquisition of a data centre in Osaka achieved a few outcomes for the REIT.
Firstly, it signals the intention of diversifying the portfolio geographically. The management opined that as the portfolio grows bigger, they need to reduce concentration risk, to withstand any unforeseen shock. Beyond Japan, they are also open to having data centres in Europe.
The second outcome is the DC provides a long term steady income. While there is no rental escalation built in in the lease, the long lease and low interest rate allows the REIT to earn a spread of 2.6%.
CEO shared that while they also do not like fixed rate, this is the norm in Japan. However, they are starting to see some changes in the environment, where there is some small escalation built in.
Since Parkway Life REIT is in Japan for a long time, I did a cross check on their lease term.
Parkway Life REIT’s ‘up-only’ rental reviews share some similarities with MINT’s fixed-rate lease, though they apply to nursing homes. However, both are subject to existing lease agreements and applicable laws.
Finally, cash from the equity fund raising allowed them to swap their higher interest loan with this lowest JPY interest loan and that helps to lower the average borrowing costs.
With these different considerations, I do think that overall this acquisition is positive to the REIT.
Average borrowing cost will be slightly higher than 3.2% but below 3.5%
On borrowing cost, current CFO and CEO-designated Lily Ler, shared that with the repricing of hedges, the average borrowing cost will be slightly higher than 3.2%, and very unlikely to exceed 3.5%.
Stable performance for SG portfolio but headwinds in Singapore Business Parks
The bar chart that jumped out must the the huge decline in the occupancy for light industrial buildings. CEO explained that this is due to a single tenant that left the 26 Woodlands Loop property, which is one out of the three light industrial buildings.
Just like how he joked about his leaving would increase the percentage of female members in the board from the current 27% to 44% next year, the single vacancy significantly impacted their small light industrial buildings category.
The second bar that caught my attention was the drop in Hi-Tech buildings, which CEO attributed it to the inclusion of Mapletree Hi-Tech Park @ Kallang Way. They are building its occupancy over the years and currently its occupancy is at 53%. Excluding this property, the occupancy of Hi-Tech buildings remain stable.
Finally, CEO highlighted the competition for Business Park going forward as there is an increase in supply arising from developments and redevelopments in Science Park, one-north and Cleantech Park. Despite the competition, they are still getting positive rental reversion.
Overall, CEO opined that SG portfolio will still be stable and should continue to see a bit of upshift.
Valuation loss in US portfolio is unlikely to worsen much further
The valuation loss is attributed to two factors: capitalisation rate expansion due to the higher interest rate environment and the property’s cash flow. The first risk is lower now as rates are unlikely to climb further.
To improve cash flow, they’re actively managing properties with lower occupancy. For example, they successfully leased the former AT&T building to a medical center for 30 years.
Hyperscale providers are the most stable tenants, but securing end users like AT&T can be challenging. They see tailwind from AI, but the biggest constraint is power supply, as AI facilities require several times more power than typical buildings.
The CEO shared they are in talks with power agencies to secure permits for increased power supply for a few assets.
It does seem that the worst might be over for the US segment and there is potential for further growth.
Looking Ahead
It is definitely a tougher operating environment for REITs, including MINT. However, I think they have done well managing the challenges. With the additional distribution of about 0.45 cents divestment gain (over the next four quarters), they should be able to sustain their dividend per unit (DPU) of around S$0.134 cents, which translates to an attractive yield of 5.8%.
Like MLT, I recently rebalanced my portfolio and trimmed some holdings, but will be holding onto the rest of my shares.
Related materials: Annual Report 2024, AGM Slides 2024, Responses to Substantial and Relevant Questions from Unit holders
For more coverage of the AGM, you can visit these sharing at InvestingNote:
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