Mapletree Logistics Trust (MLT) is a REIT that owns a diversified portfolio of logistic properties located in Singapore and across the Asia-Pacific. As of 30 September 2020, the value of MLT’s assets under management (AUM) was S$9.0 billion.
In October, MLT announced its intention to acquire the remaining 50% stakes in 15 logistics properties in China, and 100% stakes in nine new logistics properties in China, Malaysia, and Vietnam. The total cost of the acquisition is S$1.1 billion.
I attended MLT’s extraordinary general meeting to learn more about the deal, and how the impact of COVID-19 has changed the business landscape for logistics players in the region.
1. The acquisition is DPU-accretive for unitholders. On a pro forma basis, distribution per unit is estimated to increase by 1.7% to 8.28 cents. Likewise, net asset value per unit will grow 7.2% from S$1.21 to S$1.29.
2. As the acquisition will be funded mostly by equity financing comprising a private placement and preferential offering, MLT’s gearing ratio will fall from 39.5% to 36.8%. Units of the preferential offering are priced at S$1.99 which is currently above the market price of MLT (as at (26 November 2020).
In response to a unitholder’s question, CFO Charmaine Lum explained that MLT decided to raise equity considering MLT’s relative high unit price and use the opportunity to strengthen the REIT’s balance sheet. The lower gearing ratio will leave MLT with a debt headroom of S$400-500 million which can be used for potential third-party acquisitions in the future.
3. CEO Ng Kiat shared that COVID-19 has accelerated the adoption of e-commerce, increasing the demand for logistics solutions. Although total retail sales in China fell 8.6% due to the pandemic, online retail sales grew 15.8%. The same can be observed in Malaysia and Vietnam, the two other markets in the acquisition.
The CEO added that Southeast Asian economies stands to benefit as companies start to seek a ‘China plus one’ strategy and build more geographically-diverse supply chains.
4. There is currently a limited supply of modern Grade-A logistics facilities in China. Only 7% of China’s logistics space per capita is Grade A compared to 46% and 80% in Singapore and Australia respectively. Grade-A facilities include tall clear height ceilings, large floor plates, and direct ramp access to every floor which facilitate faster and more efficient logistics operations.
The CEO highlighted that many of the acquisition properties are located less than an hour to the city centre and key transport nodes. Companies are now moving away from a hub and spoke model to smaller multiple hubs in order to reach customers faster. Especially for e-commerce players, speed of delivery is a key competitive advantage.
5. A unitholder asked why MLT was acquiring 100% stakes in nine new properties now when it only considered 50% stakes in the other 15 other properties previously. Chairman Lee Chong Kwee explained that MLT had gained valuable experience and expertise in China since and is now more comfortable in acquiring a 100% stake in properties in familiar markets. He added that the properties would likely be more expensive in the future due to the growth in demand for logistics space, and it makes sense to fully acquire them now.
6. Another unitholder brought up the recent spate of Singapore REIT mergers (e.g. CapitaLand Integrated Commercial Trust and Frasers Logistics Trust) and asked if MLT would end up merging with any of its sister REITs down the line. The chairman said that each of the four Mapletree REITs are specialised in different sectors, and the logistics sector is big enough for MLT to continue expanding in. Although he can’t speak on behalf of Mapletree, he doesn’t see a reason for a merger.
7. A unitholder asked if MLT would consider developing its own logistics properties to grow its portfolio. The chairman replied that MLT is currently doing a small Australian project and is open to property development if more opportunities become available. However, despite the profit upside, developing new properties require a few years to plan, build, and fill with tenants. This is compared to the fully tenanted properties (at 94.7% occupancy) MLT is acquiring in this deal.
The fifth perspective
The acquisition expands MLT’s exposure in the high-growth consumption markets of China, Vietnam, and Malaysia. The pandemic has also accelerated the adoption digital and e-commerce habits which will increase the demand for logistics space.
The acquisition was voted through and approved at the extraordinary general meeting. Existing unitholders who did not participate in the preferential offering will not face much dilution as the acquisition is DPU and NAV accretive, and MLT is currently trading below its preferential offering price.
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