Since IPO in July 2005, the Manager has followed a "Yield Plus Growth" strategy. This ensures that the Trust will consistently deliver steady and competitive returns to Unitholders.
From 2005 to 2007, MapletreeLog's portfolio grew rapidly, mostly via acquisitions of quality properties across Asia. In 2008, in view of the deteriorating economic and capital market environments, we focused on completing the acquisitions of the 11 properties that were committed in 2007 and did not undertake any new acquisitions. In 2009, in response to the worsening global economic crisis, we shifted our emphasis to operations and asset management, with the aim of optimising yield from MapletreeLog's existing portfolio. By Q4 2009 as market conditions started to improve, we recommenced yield-accretive acquisitions to deliver some growth to Unitholders. We are currently building a pipeline of yield accretive acquisitions and hope to announce some of these over the next few months.
While the worst of the global economic crisis may now be behind us, there are concerns with the pace of the global economic recovery. The economic landscape in 2010 thus remains challenging. We will therefore continue to focus on
optimising yield and maintaining high occupancy levels for MapletreeLog’s portfolio. At the same time, we believe the current market environment offers opportunities for growth and we have therefore started building a pipeline of yield-accretive acquisitions of good quality logistics properties which will enable MapletreeLog to deliver some growth to Unitholders. Concurrently, we will continue to protect and strengthen MapletreeLog’s balance sheet with active capital management strategies.
In addition to our two-pronged approach to acquisitions (purchases from third party and from the Sponsor), we also focus on a few other critical success factors:-
Proactive Asset Management
We seek to maintain high tenant retention rates, maximize rental reversions, maintain high occupancy levels, minimize property expenses and reduce costs associated with marketing and leasing space to new tenants, without compromising the marketability of the properties. Our focus is on optimizing yield to Initholders to extracting greater value from the existing portfolio of assets.
We have a healthy portfolio of assets comprising of 86 properties in 7 countries with a total book value of over S$3 billion as at 30 Jun 2010. We believe the geographical diversification adds to the robustness of our portfolio and will enable us to cope well with the challenges in the current economic environment. For more details on the competitive strengths of our portfolio, please see the Competitive Strengths section under "Portfolio Properties".
Tailored Leasing Strategy
We tailor our leasing strategy to meet local market conditions as well as to optimise overall portfolio rent. This is done by generally having long leases in stable markets like Singapore and Japan and shorter leases in higher growth markets like Hong Kong and China. Long leases are usually signed by customers in MapletreeLog’s Single User Assets (“SUA”) and have rental escalations built into them. Short leases are more common in Multi-Tenanted Buildings (“MTB”) and are subject to rental reversions depending on market conditions. As at 30 Jun 2010, approximately 59% of MapletreeLog’s portfolio comprised of SUAs and 41% comprised of MTBs.
Capital Management Strategy
As a REIT, MapletreeLog’s distribution to Unitholders will substantially come from the income of its underlying properties. Hence, our capital management policies are defined with income protection in mind. While we strive to optimise the combination of debt and equity to maximise distribution, it is equally important to maintain financial flexibility to fund future acquisitions and asset enhancement works.
As Manager, our capital management objectives are to:
- maintain a strong balance sheet by adopting a medium-term target average gearing of around 45%;
- secure diversified funding sources from both financial institutions and capital markets as the Trust grows in size and scale;
- minimise the cost of debt financing; and
- manage the exposure arising from adverse market movements in interest rates and foreign exchange through appropriate hedging strategies.
Maintaining a strong balance sheet also involves ensuring sufficient liquidity for MapletreeLog. We target to maintain only 20% to 30% of the Trust’s aggregate leverage with maturity of less than a year.
To manage refinancing risk, it is important that large amounts of debt do not come up for maturity in any single year. The Manager is actively working to ensure a more even distribution of MapletreeLog’s debt maturity profile, such that no more than 25% of the Trust’s debt comes due in any single year. MapletreeLog’s interest rate exposure is actively managed through the use of interest rate swap contracts and/ or fixed rate borrowings. As a policy, we target to hedge at least 50% of the Trust’s borrowings.
For currency risk management, the principle is to borrow as much as possible in the same currency as the asset to derive a natural long-term hedge thus removing the need for capital hedging instruments. This also results in tax efficiencies and allows us to optimise the distributions back to the Trust. Where possible and cost permitting, foreign exchange exposure from the net income streams of MapletreeLog’s overseas assets are also hedged through appropriate use of currency forwards.
“Follow-the-client” strategy
As the logistics sector in Asia evolves, logistics service providers will expand across the region and new providers will enter the market. With its regional network, MapletreeLog can plug into this trend with our “follow-the-client” approach by partnering the Trust’s customers in their regional expansion needs.
Close to 25% of our customers (by gross revenue) are with us in more than one location or country e.g. Toll Logistics, NEC Logistics, Menlo Worldwide, Yusen Air & Sea Service, MOL Logistics, Nissin Logistics, CEVA Logistics and IDS Logistics. This is
testimony of the close and growing relationship we have with them and is a demonstration of our “follow-the-client” strategy. We will continue to cultivate these client relationships so that we will be a close and trusted regional real estate partner for these customers.
To further strengthen our “follow-the-client” strategy, we intend to undertake some Build-to-Suit (“BTS”) projects within MapletreeLog. This will enable us to follow our customers as they expand across the region.
Priority markets
Following our clients also allows us to prioritise our markets. We have split our various target markets into 3 tiers, categorised according to the level of priority that we accord for each market.
The tiered structure is based on various macro and micro factors which include the level of maturity, accessibility and availability of good quality logistics properties within each market. The Tier 1 countries of Singapore, Hong Kong and Japan have relatively mature markets, with strong demand from our clients and a ready supply of investment grade assets. The Tier 2 countries of China, India, Malaysia, South Korea and Vietnam are countries that have high potential - either in terms of large market size and/ or high growth potential. We continue to explore possibilities in the other countries in Asia, currently classifi ed as Tier 3. We may potentially enter into these markets if conditions are favorable and the returns to Unitholders make sense.
In the medium-term, our goal is to have the relatively more developed markets contribute about 75% of MapletreeLog’s net property income with Tier 2 emerging markets contributing the balance.
On-the-ground presence
We strongly believe that real estate is a local business that needs to be managed on the ground. Besides our head office in Singapore, the Sponsor has a total of 9 overseas offices located in Hong Kong, Tokyo, Shanghai, Beijing, Guangzhou, Kuala Lumpur, Ho Chi Minh City, Chennai and Gurgaon. As Manager, we utilise these overseas offices to house our foreign-based representatives. Our local presence in overseas offices is instrumental in sourcing new opportunities and managing MapletreeLog’s properties and customer relationships. The costs of managing these offi ces are borne by the Sponsor and Manager and none of the cost is charged back to the Trust. The extensive network of offi ces demonstrates our commitment in building a robust and enduring franchise for MapletreeLog. As at 30 Jun 2010, about half of our employees was based overseas.
Strategic partnerships
Besides the relationship we have with the Sponsor, we believe it is important to establish mutually beneficial strategic alliances with other partners. We have a successful ongoing cooperation with Itochu Corporation (“ITOCHU”) in Japan, and they have helped us in building up MapletreeLog’s Japanese portfolio.
In December 2009, the Sponsor signed a Memorandum of Understanding (“MOU”) to enter into a joint venture with ITOCHU to undertake primarily BTS development projects for strong logistics customers in Japan. The Sponsor and ITOCHU plan to develop primarily BTS development projects of approximately US$300 million to US$500 million over the next 3 to 5 years. These projects, when completed and substantially leased, will be offered to MapletreeLog on a right of fi rst refusal basis and will form a pipeline for the Trust. Although we have recently decided to undertake some BTS projects within the Trust, such large scale development projects need to be developed outside the Trust given that the Property Funds Guidelines stipulates that a real estate investment trust can have no more than 10% of its deposited property in development projects. Further, we intend to shield the Trust from the uncertainties associated with an open-ended joint venture, as is the case with this MOU with ITOCHU.
At the same time, the Sponsor and ITOCHU also cemented their strategic alliance by extending the exiting MOU for a further two years through another MOU to collaborate on investment and development of logistics, retail, industrial and commercial real estate projects in Japan, Singapore and the rest of Asia. These initiatives affi rm both parties’ intent to further strengthen and deepen the strategic partnership and leverage on each others’ strengths and capabilities to harness the opportunities in the real estate market in Asia, particularly where windows of opportunity exist in this economic environment.
We are also working with the CIMB Group, Malaysia’s largest investment bank in identifying investment opportunities in Malaysia.
Growth by acquisitions
Since MapletreeLog’s IPO in July 2005, making accretive acquisitions has been an integral part of our “Yield Plus Growth” strategy to deliver long-term growth and competitive total returns to MapletreeLog’s Unitholders. In 2008 and 2009, this strategy was put on hold in view of the global economic crisis. However, in November 2009, as economic conditions improved, we resumed our acquisition-led growth strategy. To date, we have announce the acquisition of 3 properties valued at around S$145 million in Singapore and Japan last year, another 3 in Singapore and Japan valued at S$83.5 million on 31 May 2010 and 3 properties valued at around S$200 million in Japan recently.
Our team is actively building a pipeline of yield-accretive acquisitions, predominantly from third parties. We have a strong, experienced team with proven track record and are committed to grow MapletreeLog’s portfolio while enhancing its quality. We anticipate future acquisitions will be funded through a mixture of debt and equity, while maintaining gearing at an acceptable level. Our medium term target average gearing is around 45%.
Asset Enhancement
In FY 2010, we expect to complete the extension of a ramp-up and warehouse space for Sealogistics. Upon completion, the lettable area and gross monthly revenue will increase by 9,245 sqm and about 30% respectively. Enhancement to building specifi cations has also been done by constructing a roof to the loading bay area at SH Cogent (Penjuru Close). We are continually exploring potential asset enhancement projects within the existing portfolio.
Sponsor's strong commitment
In 2010, we will continue to collaborate closely with the Sponsor to manage the development pipeline. The Sponsor has been undertaking larger scale logistics development projects which will be offered to the Trust to purchase on a right of first refusal basis. These development projects will include logistics parks, BTS (which due to size, risk profi le etc cannot be undertaken directly by MapletreeLog) and ready built logistics facilities in various Asian markets, in particular where there is little supply of investment grade warehouses, such as in China, India and Vietnam. This collaboration with the Sponsor provides MapletreeLog a crucial advantage in being able to execute our “follow the client” strategy to serve our customers across the region.
As at 30 Jun 2010, the Sponsor had committed approximately S$700 million in development projects in China, Vietnam and Malaysia. To date, approximately S$300 million of these assets are completed or nearing completion and these will be offered to MapletreeLog once they have been substantially leased. We expect that some of these assets may be bought into the Trust over the next couple of years.
In addition, the Sponsor has entered into an MOU with ITOCHU to develop approximately US$300 million to US$500 million of primarily BTS development projects for strong logistics customers in Japan. These will be offered to MapletreeLog under a right of first refusal basis and are expected to be brought into the Trust over the next 3 to 5 years.
BTS projects within MapletreeLog
In response to growing demand from our customers, we have decided to undertake individual BTS projects within the Trust. We have in place an experienced development team to execute this.
Some of the key benefi ts of undertaking BTS projects within MapletreeLog are as follows:
- better yields on development costs as compared to purchase price of completed buildings;
- lower risks as compared to speculative development projects;
- response to strong demand from our customers to expand into bigger and better designed facilities, both in developed and emerging markets;
- diversifi cation of our product offering;
- important supplement to our “follow-the-client” strategy; and
- ability to ensure quality, design and specifications of buildings.
Sponsor's development pipleline in China, Vietnam and Malaysia
The Sponsor has been undertaking logistics development projects which will be offered to MapletreeLog to purchase on a right of fi rst refusal basis once they are completed and substantially leased out. These projects provide a substantial pipeline of assets to the Trust, help us expand our foothold in markets where there is insuffi cient supply of good quality logistics space and further entrench our position, jointly with MapletreeLog’s Sponsor, as one of the leading logistics real estate players in Asia.