Saturday, November 27, 2021

Mapletree Logistics Acquisition of China and Vietnam Properties - Effect of Income Support

I think it is important for people to take note of income support for reits and things may not look as rosy as it seems based on the headline figures.

For example in 2018, it was reported that  Keppel reduced its rental support for Keppel Reit and its DPU fell.

The recent headlines about Mapletree Logistics Trust acquiring 13 China properties and 3 Vietnam properties through issuing rights must have gotten little attention due to many new Reits having IPOs lately, Daiwa House Logistics and Digital Realty.

Headline figures for the China and Vietnam properties paint a very rosy picture of a forecasted rise in DPU, post acquisition of 1.2% .

Sounds good right?

But take note that this includes rental support for 1 year post acquisition by the sponsor.

Stripping out the rental support, the DPU remains unchanged.

Not all rental supports are bad and in theory, the reason for such a practice is to stabilize  the rental income of new properties before they reach their "potential" .

But one can see the potential for exploitation. 

This "potential" may never materialize but only serve to inflate the acquisition price, causing shareholder value destruction.

Only time will tell. 

Investing is having faith too.

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