Mapletree Logistics Trust (MLT) is Singapore’s first Asia-centric logistics REIT with a diversified portfolio of logistics properties that span across Singapore and the Asia-Pacific. As of 31 March 2022, MLT’s assets under management was valued at S$13.1 billion with a portfolio of 183 properties.
In view of the current challenging global environment resulting from geopolitical uncertainties and tightening monetary measures, I was curious about MLT’s outlook and the impact of such factors on its core business. As such, I attended MLT’s 2022 AGM to find out more.
Here are the eight things I learned from the 2022 Mapletree Logistics Trust AGM.
1. Value of investment properties grew by 21.1% year-on-year (y-o-y) from S$10.8 billion in 2021 to S$13.1 billion in 2022. Overall growth in portfolio value was attributed to the acquisition of 20 properties made during the year and a portfolio revaluation gain of S$572 million largely contributed by properties in Australia, Hong Kong SAR, and China. Net asset value per unit for the year rose by 11.3% y-o-y to S$1.48.
While MLT has grown its presence in developing markets, developed markets which are relatively more mature and stable contribute more than 70% of its capital values and gross revenues.
2. MLT’s distribution per unit (DPU) grew to 8.787 cents, representing a 5.5% y-o-y growth. Total distributable income to unitholders increased 17.3% y-o-y to S$390.7 million. Since MLT’s listing in 2005, the company has provided consistent long-term returns with total returns amounting to 346%. Returns of MLT outperformed the FTSE REIT index and STI over the same period.
3. MLT holds a well-diversified tenant base with little concentration risk for the business. MLT tenant base comprises 840 local and international companies. Its top 10 tenants account for 24.2% of total gross revenue, with no single tenant contributing more than 6.3%.
Around three quarters of MLT’s tenant portfolio serves consumer-related sectors which have proved relatively resilient as demand for essential goods remain strong despite the uncertain environment. Portfolio occupancy rates remain at a healthy region of 96.7% and weighted average lease expiry is at 3.5 years.
4. Supply chain issues arising from the pandemic and geopolitical uncertainties have created a shift in logistics supply chain behaviours from ‘just-in-time’ to ‘just-in-case’. Supply chains pre-pandemic focused on cost efficiency with companies adopting just-in-time inventory systems. However, because of the global supply chain disruptions brought by the pandemic, and recently the Russia-Ukraine crisis, there is a shift towards greater emphasis on supply chain resiliency.
According to Ng Kiat, CEO of MLT, big mega-distribution centres are no longer in demand. Instead, tenants are converting to smaller warehouses that span across multiple locations. Retailer’s inventories are expected to increase by 10% to 15%, serving as safety stock. These provide greater supply chain resilience, allowing companies to reach its end-user in a short time span despite any lockdowns or disruptions. With MLT’s extensive network, they are able to meet the growing demand for ramp-up warehouses and provide multiple locations with proximity to end-customers.
5. A unitholder expressed his worries regarding the prolonged lockdowns in China and its impacts on MLT given its exposure to that region. Lee Chong Kwee, Chairman of MLT, mentioned that while China might take longer to get over its pandemic phase, MLT remains bullish on China and believes that it will eventually recover. Given the immense influence of China’s economy — which is projected to become the largest economy in the world — China will remain a part of MLT’s portfolio. Chong Kwee continued to reassure unitholders that while MLT faces headwinds in China, the company operates as a property business and their assets would not disappear. In fact, the company is well-diversified in other regions as well.
In terms of the financial impact, Charmaine Lum, CFO of MLT said that the REIT has issued rental rebates to its tenants, which is a small portion of its revenue. She added that as lockdowns in China occur in specific cities, only certain pockets of businesses are affected.
6. Another unitholder asked the management about their view on whether it is risky to have such a high percentage of its portfolio in China given that the Chinese government can easily alter rules and regulations. MLT responded that they believe in the long-term fundamentals of the logistics space, and that infrastructure and logistics hubs are top priorities for China. As these hubs promote economic growth, MLT believes that they will receive strong government support. Nonetheless, the management strives towards having a diversified exposure to other countries as well – in both developing and developed markets.
7. A unitholder asked if MLT was adopting any special measures to reduce the impact from inflation and rising interest rates, and how DPU would be affected. In response, MLT mentioned that they manage its exposure to interest rate volatilities through hedging, where 79% of its debt is hedged at fixed rates. For distributable income, unitholders should expect an estimated 0.05 cent reduction in DPU for every 25-basis-point increase in base interest rates.
In terms of the impact of rising energy prices, MLT expects minimal negative consequences as the majority of utility costs from operations are recoverable from tenants. That said, MLT will look for feasible ways to reduce energy consumption and other non-critical expenses.
8. Management has no plans for a merger between Mapletree Logistics Trust and Mapletree Industrial Trust. Management sees a clear distinction between the two in terms of asset type, geography, and tenant profile. As both operate differently with promising growth prospects in their respective sectors, there is no compelling need for a merger.
The fifth perspective
MLT’s diversified portfolio with its extensive network has allowed the REIT to accommodate its tenants’ changing demands amidst the challenging global environment today. While there are several headwinds in China, its impact appears temporary and minimal. Currently, MLT trades at a dividend yield of 5.05% (as of 25 July 2022). With a 10-year average yield of 5.83%, I would prefer a higher yield of around 6% for MLT if I were looking to invest in the REIT.
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