Ng Kiat, or more familiarly known as Kiat, is a woman on a mission.
And if you’re with Mapletree Logistics Trust (MLT), you’re in for a ride.
A good one.
On a bright and cheery Wednesday morning, despite the midweek hump everyone else seemed to be experiencing, Kiat, the CEO of MLT, was having none of it.
She boldly declared,
We are not just interested in growing AUM (assets under management), but we want to have the most modern fleet of logistics assets across locations.
We must admit that some of our logistics assets aren’t going to be as relevant.
Post COVID, the logistics industry has gone on a structural shift.
That’s why Mapletree Logistics Trust has gone on a multi-year rejuvenation programme, with Kiat declaring that “rejuvenation cannot stop”.
Looks like our media agency also has something to learn on not stopping our reinvention.
She pointed out that MLT had to date divested closed to $700m of assets, and was estimating that there would be $500m more of assets to be divested.
And to date, they had made $900m of acquisitions, with $200 to 300m more of acquisitions being prepared for.
In particular, they were looking at key growing Asian markets such as Korea, Vietnam, and India.
But of course the question comes,
how is this strategy working out,
and how are they going to fund this?
How is the strategy working?
If you look at the numbers,
On a constant currency basis, gross revenue and NPI would have increased 6.1% and 5.7% respectively.
What MLT offers is the ‘platform’, across countries, for bigger logistics players.
There was the example given of some customers wanting to scale operations quickly by getting the space next door, and Mapletree being able to quickly offer that.
But the current case of China is weighing on their revenues. Despite China contributing about 19.7% to its revenue, Kiat observed that it was the rest of the portfolio, or the 80% that was going to lift the portfolio moving forward.
How will it fund this?
But I think what was really interesting to note was the focus on recycling capital, rather than raising more from the capital markets.
When I asked about how MLT was going to fund these ongoing acquisitions, and whether it would consider rights issues (for example), Kiat ruled out EFR (equity fundraising), due to the current cost of equity.
It’s evidence that they aren’t just looking to dilute shareholders, even when that might be an option on the table.
Personally, it was refreshing to hear this, especially after hearing the fancy presentations by the likes of IREIT and Capitaland India Trust.
They were no doubt excellently executed presentations, but it didn’t hide the fact that equity fundraising was used because they weren’t able to recycle capital from sale of properties, or have good credit options that were cheaper than the cost of equity fundraising.
But when you’re on a bigger scale like MLT, with an AUM of $12 billion, you have more options available to you. Like selling your older assets.
Kiat pointed out that as a blue-chip borrower, with a Fitch ‘BBB+’ long-term issuer default rating with a stable outlook to MLT, bankers were actually asking them to draw on their credit lines.
I repeat that.
Bankers are asking them to draw on their credit lines, with attractive rates.
You can almost imagine the likes of smaller REITs salivating at the prospect of having a purse like MLT’s.
What keeps Kiat up at night
Kiat was candid about what she thought about when she was unable to sleep.
Forex, and interest costs.
Add to that the fact that China was not recovering soon, and you might see why MLT is approaching the multi-year low of $1.38, which it hit prior to lockdown in Singapore.
If you look below at a snapshot of its health, it might not initially look that rosy.
Based on a comparison amongst its wider S-REIT peers, MLT does appear to score poorer.
But is this really the case when you dig beneath the numbers?
As we’ve invested in more REITs, including some pretty ugly ones like First REIT that lost us 76% of its cost (gulp), we’ve come to see that when it comes to REITs, size and quality does matter.
But more than just that, a clearheaded strategy, and the courage to execute the strategy does matter. When we look at Kiat going through the numbers, and rationally recycling assets that don’t return as well, we like that.
AUM can be a sexy number that asset managers hide behind, and its refreshing to see a manager that doesn’t try to hide behind that.
Of course, one simply needs to look at the returns since IPO.
With their track record, we think the price now does look really attractive.