With four Mapletree-sponsored Real Estate Investment Trusts (REITs), Mapletree Logistics Trust sometimes suffered from a tricky identity crisis. The problem is further exacerbated by the numerous REITs in Singapore stock market. Nevertheless, this REIT stands out as being Singapore’s first Asia-focused logistics REIT. After being prompted by a member of SG Wealth Builder, I realize that this could be an interesting counter because of the perpetual bonds issued by Mapletree Logistics Trust.
In my previous article, I shared about Hyflux’s perpetual bonds. But do you know that REIT can also issue perpetual bonds? What are rules concerning REIT perpetual bonds and how does it impact the way investors examine the balance sheet?
To be frank, I have never been a big fan of REITS because I find them too highly leveraged for my comfort. At the peak of the Global Financial Crisis and European debt crisis, the S-REITs market was rocked because of the crisis of confidence among investors. Back then, Monetary Authority of Singapore (MAS) stipulated that an S-REIT may borrow up to 60% of its assets but must be credit-rated by agencies. In recent years, due to global recovery, MAS reduced the cap to 45% but removed the credit-rating requirement.
Thus, when assessing which S-REIT to invest, it is important to review the gearing ratio of the company and the management of its debts. In doing so, the downside risks would be reduced. Do not just pick any REITs purely on the yield. There are some areas that investors should look out for when choosing REITs. In this article, I will share some of my insights.
Listed on SGX Mainboard on 28 July 2005, the Mapletree Logistics Trust’s principal strategy is to invest in a diversified portfolio of income-producing logistics real estate as well as real estate-related assets in the fast-growing Asia-Pacific logistics sector. Big boy Temasek Holdings has about 33% stake in this REIT, holding 1 billion shares.
Since IPO, share price has risen from offering price of $0.63 to the current $1.22. Of course, this counter has its fair share of wild rides through the years. But overall, the long-term trend is positive due to strong business fundamentals. Along the way, Mapletree Logistics Trust has raised capital through two rights issues – one in 2008 and one in 2017. The 2008 rights issue raised $608 million while the 2017 rights issue brought in $640 million. Despite the two fund-raising exercises, the share price remained bullish and maintained upward momentum.
On looking back, the management did fulfil its initial promise of transforming the REIT into a regional player with significant investment fortress. Mapletree Logistics Trust initial portfolio of 15 properties, valued at $422 million as at 31 May 2005, are all located in Singapore. On 29 January 2018, the number of portfolio properties increased substantially to 124, comprising 49 properties in Singapore, 9 in Hong Kong, 20 in Japan, 11 in South Korea, 9 in China, 9 in Australia, 14 in Malaysia and 3 in Vietnam. The total book value of these properties is approximately S$6.3 billion (as at 31 December 2017).
Understanding the REIT’ structure
Like all REITs, Mapletree Logistic Trust has a Sponsor (Mapletree Investments Pte Ltd), Trustee (HSBC Institutional Trust Services Ltd), Manager (Mapletree Logistics Trust Management) and Property Manager (Mapletree Property Management Ltd). Although investors may be confused by the presence of so many stakeholders, each party plays an important respective role. The complex structure is also due to the highly regulated nature of REIT in Singapore.
As a trustee, HSBC Institutional Trust’s powers and duties include holding the properties of MLT for the benefit of the unitholders and exercising all the powers of a trustee and the powers accompanying ownership of the properties of Mapletree Logistics Trust.
To illustrate the above structure, I will use the management of a condominium as an example. The developer of the project is like the Sponsor, who will build, develop and subsequently sell the condominium, through a Manager, to a pool of homeowners (investors), who are the unitholders of the REIT.
The Manager of the REIT is like the management committee of the condominium, who will oversee the investment strategy, financing, administrative, acquisition and disposals of the estate. For those who live in condominium, you would know that the management committee will typically subcontract the maintenance of the property to a Property Manager, who will oversee property management service, lease management services, lease management services, marketing and property tax services. The HSBC Institutional Trust acts on behalf of the unitholders.
You are not investing in shares!
It is important that you understand the above structure of a REIT because investing in REIT is not the same as investing in the stocks of a company. Fundamentally, REIT is a form of collective investment scheme that is focused on real estate. REIT investors are basically the unitholders of a REIT. In this regard, you are not the shareholder of a company, which is the case for investing in a stock.
There is a thin fine line between a stock investor and REIT investor. And you need to comprehend this [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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