Analysis of Mapletree Logistics Trust and Frasers Logistics and Industrial Trust

As a teenager who just turned 19, I have been saving up for my second investment after my Singtel purchase. I am sure most of us have owned REITS before and this would be my first REIT investment! As what many people had said, it is very important to understand how a stock earn its money before making your purchase. I have been sharing with my friends of the same age as I am how REIT works (using my own words) and I am sure I will be able to sleep tightly that I have made the right decision on which REIT to buy.

Previously, I only had a few REITS in mind. They are CapitaMall Trust (CMT), Mapletree Commercial Trust (MCT) and Frasers Centrepoint Trust (FCT). This is the order of the REIT I would like to have in my portfolio. However, I got told to not look into them but more into logistics REIT due to the rise of e-commerce. I found two REITS with strong sponsor and good track record – FLIT and MLT. Both REITS give good dividend yield and they are near their 52 week low (when I written this post, it was in November).

Disclaimer: I am not good at analysis and please help me out as we both learn together!

Portfolio Review

FLIT has 82 properties in Australia, Germany and Netherlands. On the other hand, MLT has 140 properties in Asia. In my opinion, even though MLT has more properties, I feel that FLIT properties are more quality than MLT. Looking at occupancy rate, FLIT stands at 99.6% while MLT stands at 97.6%.

FLT MLT 1

WALE at FLIT is also longer at 6.87 years compared to the 3.8 years in MLT. There are pros and cons in WALE. It is very difficult to compare the WALE of both REITS because both of them operate in different continents. MLT which operates in Asia tends to have lower WALE than FLIT which operates in Australia and Netherlands. However, I prefer a longer WALE as it means that management does not need to spend on finding tenants and I will have a more stable distribution payout because I do not need to worry about vacancy issue.

FLT MLT 2

This can be seen in their lease expiry profile where in MLT there are 33.5% lease expiry in FY 18/19 and FY 19/20. Only 8.4% lease expiry till FY 19/20 for FLIT making it a more stable REIT. Looking at this, you can see that FLIT carry less risk of managers not able to find tenants to prevent any loss of potential revenue.

flt mlt 5

People said how one should not put all eggs in one basket. MLT beat FLIT in terms of the number of tenants it has. MLT has 619 tenants while FLIT has just 71 tenants. According to MLT latest presentation slide, top 10 tenants contributed to 28% of gross total revenue while in FLIT the figure is 32.1%. It is quite comparable despite the stark difference in number of tenants each REIT has. One point to take note, MLT top tenant, CWT, contributes close to 10% of gross total revenue while FLIT top tenant, Coles contributes just 7.1% of it. Key tenant risk is quite high for MLT.

FLT MLT 3

A look at the figure on the number of Freehold properties do both REITS have. FLIT has 70% of its properties that are freehold while MLT just 23%. Looking at the screenshot, you can also see that MLT land lease would also expire earlier than FLIT.

FLIT recorded negative rental reversion in the latest quarter at -3.2% due to a double digit negative rental reversion of -19.8%. It is a worrying sign while MLT recorded a positive rental reversion of 1.8%. FLIT has been recording negative rental reversion for four quarters straight. As Unitholders, positive rental reversion is what we want always. However, it is worth to note that the demand space for industrial space in Australia is positive with national take up levels at 17% above 10 year average. As for specific industrial market in Australia, demand continues to outstrip and outpace supply and rents are more expensive in Sydney and Melbourne. As for Brisbane, there is reduction in vacancy rate though it is higher than Sydney and Melbourne. We could see that rents bottomed in Q32017 to inch up $1 YOY.

Conclusion: Properties at both MLT and FLIT are good. If you are more into rental reversion then one should look into MLT. As for FLIT, rental reversion is very disappointing but their properties are top notch.

Debt

FLT MLT 4

We will look into the debts of both REITS. Gearing ratio of MLT is at all time high of 38.1% whereas FLIT is just at 34.6%. FLIT gearing ratio was once at ~30% before all the acquisition. Both REITS have Weighed Average Annualised Interest Rate of 2.5% and both REITS also have similar percentage in their fixed debt at 82% for FLIT and 80% for MLT. However, MLT has longer debt duration of 4.3 years compared to the 2.9 years in FLIT. As for Interest Coverage Ratio, FLIT has it at 7.1 times while MLT is at 5.1 times. Clearly by just looking at the debt stats, FLIT beat MLT hands down.

Conclusion

It is indeed very difficult to compare FLIT and MLT as both REITS are great. If I have a choice, I would choose FLIT for its excellent financial health and properties. Not saying that MLT properties are bad but I prefer higher WALE at this time of the year. One thing to note for FLIT would be the negative rental reversion but FLIT has been consistent in increasing the DPU YOY.

Update: I bought both REITS on 19 November 2018. I bought MLT too because I like the growth that it is having. Why not just get both to have exposure in logistics properties in most parts of the world?

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