Mapletree Logistics Trust (“MLT”) is a Singapore Asia-focused logistics real estate investment trust. As of the time of this writing, MLT invests in a diversified portfolio of quality, well-located, income producing logistics real estate in Singapore, Hong Kong SAR, Japan, China, Australia, South Korea, Malaysia and Vietnam.
Based on the breakdown above extracted from their results announcements, I like how they are well diverse in terms of geographical location.
Apart from Singapore, their main geographical location is in Hong Kong. Hong Kong being a small city would translate to a limited supply of warehouse space in Hong Kong. This would prove to be a value adding asset that MLT had acquired.
Unlike Festive Walk, the shopping centre held by Mapletree North Asia Commercial Trust (SGX: RW0U) in Hong Kong, a warehouse in Hong Kong is less susceptible to direct impacts of the protest, such as break ins and damage of property. This allows MLT to strengthen their asset base.
In terms of tenant concentration, they are also well diversified without a significant reliance on a single tenant for income. This in my view is a good sign as heavy reliance on a single tenant may result in adverse impacts if the tenant decides to pull out.
Dividend yield
As at the time of this writing, it is trading at $2.05 with a dividend yield of 4%. Amount all the sectors, logistic I believe will be considered defensive as logistics are least likely to be heavily disrupted. Thus moving forward, their dividend should be sustainable.
In the short term however, expect some DPU cuts. Even though the REIT have a more defensive cash flow, the manager should save some cash for rainy days.
Some positive notes
MSCI Singapore Index
Its recent inclusion in the MSCI Singapore Index is a good opportunity to raise awareness of this Company. It also helps with share price appreciation, granted that any Exchange Traded Funds (“ETFs”) tracking the MSCI Singapore Index will be purchasing more MLT stocks into their books as their fund expands.
There is a risk that it might get removed resulting in potential fall in share prices following the re-balancing by funds. However, in the short term it is unlikely to happen. The recent removal of 4 companies (ComfortDelGro Corporation, Sats, Sembcorp Industries and Singapore Press Holdings) are arguably justified given their poor performance in recent years.
As of the time of this writing, MLT, being a logistic focused trust, definitely faced some disruptions in the short term. However, once things stabilize, they are more likely to be sustainable given that their tenants are least affected as logistics will become more relevant in this world where eCommerce is growing. This is with reference to other trusts in other industries such as retail or commercial.
Website: Singapore stocks slip, 4 names dropped by MSCI
Key things to note
Supply chain disruptions
While they are not directly impacted as compared to retail, they are still reliant on consumer demand. The consumer confidence have experienced a sharp fall due to Covid-19 and have only recently increase slightly in May.
Website: Consumer Confidence Sees Revival in May: Here’s What it Means
While this is a good sign, I attribute it to the government support that are currently supporting the market. Essentially what is happening is that the government is paying people to stay at home and not work. In the case of the US, people are reaping the unemployment benefits and requires the government to introduce a back to work bonus.
Website: White House, Congress discuss ‘return to work’ bonus of $450 a week
This is a stark contrast to having a budget that supports economic growth. In fact, it is delaying the inevitable as this government support will not last forever and will have to stop eventually. With business closures being permanent, it is unlikely that the economy can return to normalcy even if the virus was to end in June 2020.
Ongoing global tensions
While majority of the world have more or less stabilized from Covid-19, there is increasing tensions between the major economies, there is uncertainty regarding whether any major trade policies might result in significant disruption to their tenants. MLT is reliant on their tenants being able to survive.
Conclusion
Moving forward, MLT is in a REIT that is in a much better industry compared to what we have in the current market. Investors can consider including this to their portfolio for passive income. However we must always remember that just because it is a “logistic” trust, does not mean it is immune to how the other industries are faring.
As I end off, I would like to highlight that personally, I am getting increasingly worried about the economic situation around the globe and their consequences. High unemployment rates, business disclosures or the potential prolonged recession can shake the fundamentals of even solid Companies. I am not one who is concerned about share price, which can be inflated by pure liquidity. Instead, wonders if our Companies are doing well.
