Why Is Mapletree Logistics Trust Attractive to Investors?

Mapletree Logistics Trust (MLT) is one of Asia's largest logistics REIT with a market capitalization of $8 billion. MLT has a diversified real estate portfolio worth $8 billion consisting of many well-located income-producing logistics properties across Singapore, Hong Kong, China, Japan, South Korea, Malaysia, Vietnam, and Australia. MLT was added to the Straits Times Index in Dec 2019, making it an official blue-chip REIT. Since then, its share price has consistently increased and it became one of the most popular REITs among Singaporeans. MLT's share price has increased more than 30% year to date from $1.50 (Aug 2019) to $2.15 (Aug 2020). Its share price has continued to increase even during this COVID-19 period which shows how much confidence investors have in its performance and management. What makes MLT so attractive to investors?

Consistent Dividend History

MLT has a 15-year consistent dividend history (>10 years), ranking it among the top tier REITs in terms of consistent dividend history. They have been paying out dividends to shareholders at regular intervals since 2006 without fail. This shows that MLT can maintain a healthy cash flow to sustain its dividend payouts and is a good indicator of a well-managed REIT. Their long consistent dividend history attracts dividend investors as it reflects the stability and strength of MLT. You can check out MLT's dividend history here. 

Strong Sponsor

MLT is strongly sponsored by Mapletree Investments Pte Ltd. Mapletree Investments Pte Ltd is one of the largest property management company in Singapore. As of 2020, they have an overall real estate portfolio worth $60.5 billion consisting of office, retail, logistics, industrial, data centers, residential and lodging properties across the world. A sponsor is a company that provides the properties into the initial portfolio of the REIT and may continue to provide more properties for the REIT in the future. Moreover, the strong sponsor can provide financial support to MLT in times of difficulty and continue to provide profitable properties to MLT in the future. The strong sponsor contributes to the attractiveness of MLT to investors as it reduces the risks and improves the stability associated with MLT. 

 

Diversified Tenant Portfolio and High Occupancy Rate

MLT has an extremely well-diversified tenant portfolio and an impressive tenant occupancy rate of 97.7% (>90%). Their portfolio consists of strategically located logistics clusters of properties across 8 countries and they have a wide array of tenants contributing to the REIT's income. This helps to further improve MLT's stability and lowers the risks associated as no one tenant is responsible for a large percentage of its income. This means that they do not have to worry about their profit being significantly impacted if one of the tenants stopped paying their rent or did not want to renew their rent. A diversified tenant portfolio and the high occupancy rate is definitely an attractive factor for MLT.

Debt Gearing Ratio

MLT has a debt gearing ratio of 37.5% (<40%) which is well within the appropriate debt gearing ratio for REITs (<40%). The debt gearing ratio refers to the ratio of a REIT's debt against its net total assets. REITs often use debt as leverage to acquire more properties and expand their portfolio at a faster rate. A high debt gearing ratio is potentially risky as the REIT will be very vulnerable to changes in the economy (such as the current COVID-19 pandemic) and increases in interest rates. MLT's debt gearing ratio of 37.5% is relatively high compared to similar REITs (33-35%) but is still well within the appropriate debt gearing ratio of 40%.

Dividend Yield

MLT has an average dividend yield (dividends/share price) of 3.68% for the past 5 years and its estimated dividend yield for 2020 is 4%. This is slightly on the low side compared to the average Singapore REIT's dividend yield of 4-6%. However, this is could be due to the sharp growth of MLT's share price over the years making its dividend yield look not as impressive as the other REITs. Moreover, MLT can maintain a similar dividend yield in 2020 (4%) compared to 2019 (4.18%) despite the effects of the COVID-19 pandemic. This is very impressive as most Singapore REITs have cut their dividend yield by 2-3% but MLT can maintain a similar dividend rate. This demonstrates MLT's resilience and versatility which is definitely enticing to dividend investors. 

Verdict

MLT is definitely one of the most stable blue-chip REITs to add to your portfolio, especially given its remarkable performance in this COVID-19 pandemic where its share price hit a new peak. However, I feel that it is currently too expensive to buy at $2.15 with a P/B (Price to Book) ratio of 1.6. It is definitely overvalued at the moment and I feel that a good value to buy MLT is around $1.80 per share. 

What are your thoughts on MLT's recent stellar performance?

*You can check out MLT's impressive 1Q FY20/21 Financial Results here.