As the world careens into a second year where Covid-19 remains rampant, a stock portfolio that provides steady distributions and where components can benefit from late-stage Covid-19 developments such as logistics and cold supply chains, are likely to provide stability.
Mapletree Logistics Trust (MLT) is not the de facto cold chain play in the local market. REITs such as ARA LOGOS Logistics Trust have more of such assets as a portion of its portfolio. However, at a time when the quality of the manager and sponsor, and size of the portfolio take on greater significance following the problems at Lippo Mall Indonesia Retail Trust and First REIT, preservation of capital is key. MLT is likely to provide investors with both stable distributions and growth.
Last November, MLT completed a fund-raising exercise, issuing 246.7 million units in a private placement at $2.027 each, and 72.4 million units in a preferential offering at $1.99 each. In addition, MLT issued 2.65 million units at $2.2027 per unit to its manager for acquisition fees, and 148 million units issued at $2.027 million to Mapletree Investments, to maintain a strong alignment of interests between sponsor and MLT. These units have been taken into consideration in MLT’s distributions in 3QFY2021 ended December 2020.
However, the net property income from the acquisitions that were funded by the equity-raising will only accrete in 2021 and MLT’s FY2022. In December 2020, MLT completed the acquisition of a 50% stake in a portfolio of 15 properties and 100% stake in seven properties in China, one property in Malaysia and one in Vietnam for a total of $1 billion. According to an announcement by MLT, the acquisition properties would contribute $53.9 million in net property income (NPI) if they were acquired for the FY2020 ended March 2020, with an occupancy rate of 94.7%. This compares to around $438.5 million in NPI reported for the 12 months ended March 2020, by MLT, excluding $15.18 million contribution from a 50% stake in the 15 Chinese properties that MLT now fully owns.
Based on pro forma data, the acquisition is 1.3% accretive to DPU and raises its NAV by 30%. Hence, as at end December 2020, MLT owns 156 logistics properties valued at $10.2 billion, making it the third largest REIT by AUM after CapitaLand Integrated Commercial Trust and Ascendas REIT.
In 3QFY2021, MLT’s occupancy declined 40 basis points q-o-q to 97.1%, mainly due to South Korea where there were non-renewals from consumer staples tenants who were previously under short-term leases, and Hong Kong, where tenants scaled down their operations due to cost reduction and lower business volumes.
Elsewhere, occupancy in Japan dipped 4 percentage points q-o-q due to the inclusion of MLT’s acquisition of Higashi Hiroshima Centre, which is 33% occupied. The point of the low occupancy at acquisition is so the manager can “yield up” the property by filling the vacancies in the next three to six months. “In order to attain higher acquisition cap rates, MLT is open to looking at assets with low occupancies where it is confident of leasing up the assets, and forward purchases, i.e. assets that are still under construction,” a recent report by Credit Suisse points out.
“Going forward, management expects to continue seeing stability in Japan, South Korea, and Singapore. Meanwhile, its China portfolio could see some volatility in occupancy, while Malaysia may see more occupancy pressure,” the Credit Suisse report says. “Vietnam is a bright spot where management has been seeing stronger demand,” it adds.
MLT’s manager continues to be on the lookout for further acquisitions with the potential for around $400 million worth of properties in South Korea and India in 2021. If this materialises, it would mark the REIT’s entrance into India. MLT would be looking at stabilised assets with occupancies of 90–95%, says Credit Suisse. The acquisitions are likely to be in gateway cities such as Mumbai, Pune, Delhi and Bangalore.
In 3QFY2021, MLT’s NPI rose by 11.9% to $124.74 million while DPU rose 1% to 2.065 cents because of the larger unit base. Still, Credit Suisse is not overly bullish on the REIT. “While we like the long-term growth potential of logistics and MLT’s regional portfolio, at a low dividend yield of 4.1%, we believe the REIT is already fairly valued,” it says.
On the other hand, Maybank Kim Eng maintains a buy on MLT because of its strong balance sheet, premier management and sponsor, and propensity for growth.
