The feelgood effect is all around as economies open up and people resume travelling again.
Social media posts are starting to fill up with families travelling to distant parts of the world after a two-year pause.
The spike in consumer demand may not last, though.
Singapore is seeing a decade-high core inflation while interest rates are also surging.
REITs have bore the brunt of these effects as investors fret over the sustainability of their distributions.
Mapletree Logistics Trust (SGX: M44U), or MLT, is one such example.
The logistics REIT has seen its unit price plunge 20% within a year, and is now trading close to a 52-week low of S$1.50.
Can MLT see a recovery in its share price anytime soon?
Backed by a strong sponsor
The good news is that MLT is backed by a strong sponsor in Mapletree Investments Pte Ltd (MIPL).
MIPL is a global real estate development, investment and property management firm that manages three REITs and six private equity funds, with total assets under management (AUM) of S$78.7 billion as of 31 March 2022.
The strength and reputation of the sponsor is an important factor for income-seeking investors looking for safe refuge from the upcoming economic storm.
Not only does the sponsor help to support the REIT in times of trouble, but it can also provide it with a pipeline of properties for acquisition.
This double benefit means that investors need not worry that MLT will flounder should a recession hit.
Adequate buffers in place
Another important question for investors is whether the REIT will be adversely impacted by the rapid rise in interest rates.
In this regard, MLT has buffers in place to mitigate its impact.
80% of the REIT’s borrowings of S$5 billion as of 30 June 2022 are either hedged or locked into fixed rates.
Also, MLT maintains a well-staggered debt maturity profile, with a maximum of 20% of its debt coming due in any fiscal year.
In addition, only 9% of the REIT’s borrowings are due in fiscal 2023 (FY2023) ending 31 March 2023, with the REIT manager already having committed credit facilities in place to refinance the S$460 million needed.
The furthest maturity date even stretches all the way past FY2030 amounting to 10% of MLT’s loans.
Finally, the weighted average annualised cost of debt for MLT remained low at 2.3%, just slightly higher than the 2.2% logged three months earlier.
Acquisitions and a redevelopment
Another positive for MLT is its steady track record of yield-accretive acquisitions.
For FY2022, the REIT successfully concluded seven sets of acquisitions of logistics properties in countries such as Singapore, Australia, Japan, Vietnam, China, South Korea and Malaysia.
Back in FY2021, MLT conducted six sets of acquisitions in India, Australia, Japan and China.
And for the first quarter of FY2023 (1Q2023), two acquisitions were completed in both China and South Korea.
These acquisitions have boosted MLT’s distribution per unit (DPU) over the years.
MLT is also slated to spend S$197 million to redevelop six blocks of industrial facilities at 51 Benoi Road in Singapore.
Targeted to be completed by 1Q2025, the redevelopment will more than double the property’s gross floor area from 391,000 square feet (sqft) to 887,000 sqft.
This redevelopment will increase rental income for the REIT and is an effective way to grow its top line organically.
An attractive yield with strong operating metrics
Being an industrial REIT, MLT is more resilient than other property sub-classes such as retail and commercial that may be sensitive to economic fluctuations.
Its portfolio occupancy remained healthy at 96.8% as of 30 June 2022.
The REIT also registered positive rental reversion of 3.4% for 1Q2023, demonstrating its ability to chalk up organic rental growth.
With 185 properties across eight countries under its belt, MLT is also adequately diversified.
The REIT’s top 10 tenants account for around a quarter of total gross revenue, with the largest tenant contributing just 6.3% of gross rental.
MLT’s tenant base is spread out in different trade sectors such as food and beverage (21%) and consumer staples (20%), which have the ability to withstand tough economic conditions as they provide necessary products.
It seems the REIT has all the ingredients in place to get through the current tough conditions and emerge stronger.
Units of MLT provide a 5.7% trailing 12-month distribution yield.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
