Brokers' take: Mapletree Log Trust expected to stay resilient despite moderation in acquisitions

AS Mapletree Logistics Trust M44U (MLT) runs into cap rate compressions in key markets, inorganic growth through portfolio acquisitions would be tougher to find even as continued demand for logistics space is expected to help the real estate investment trust (Reit) stay resilient, said brokerages in research reports released on Tuesday and Wednesday.

OCBC Investment Research noted that MLT's distribution per unit (DPU) of 2.161 Singapore cents last quarter marked the Reit's second consecutive quarter that it managed to increase the DPU by more than 5 per cent on a year-on-year basis.

However, as MLT faces cap rate compression across a number of its key markets, such as Australia, Hong Kong and Japan, acquisition opportunities would be tougher to find as these tend to come at a premium.

Therefore, MLT may look at acquisitions worth around S$400 million from third parties in FY2022 and could also explore redevelopment opportunities within its portfolio. These could then be partially balanced by around S$100 million to S$200 million of divestments in China, South Korea and Singapore. OCBC maintained "hold" on MLT with a fair value estimate of S$2.10.

Jefferies equity analyst Krishna Guha said that MLT may also look for off-market deals in Japan, aggregate smaller assets in Australia and Singapore and look beyond established logistics hubs in South Korea as the acquisition environment becomes tougher.

He continued to maintain "buy" on the Reit, albeit at a lower target price of S$2.35, down from his earlier target price of S$2.40.

Aside from the Reit's acquisition outlook, brokerages also noted that MLT achieved positive rental reversion of 2.2 per cent for new and renewed leases in the first quarter of FY2022, which were driven by positive reversions in Vietnam, Hong Kong and Singapore.

Portfolio occupancy improved 30 basis points to 97.8 per cent as well, driven by higher occupancies in South Korea and China.

UOB Kay Hian (UOBKH) analyst Jonathan Koh said that while the logistics space remains resilient, tenants with exposure to the retail sector are cautious of the risks posed by the new Delta variant of Covid-19 to the pace of reopening and recovery.

"MLT will focus on maintaining stable occupancies, giving priority to tenant retention and adopting a prudent approach for capital management," he said.

Thus, UOBKH maintained "hold" on MLT with a target price of S$2.08 on the back of its unattractive distribution yield of 4 per cent.

Similarly, Maybank Kim Eng (Maybank KE) analyst Chua Su Tye said while MLT's retail sector occupiers take a wait-and-see approach, the Reit is looking to drive rental upside from its higher value tenants in the next nine to 12 months.

"We expect its occupancies to remain resilient, as demand continues to be driven by e-commerce tenancies and third-party logistics," he said.

Noting the potential for further rejuvenation opportunities in Singapore, Maybank KE maintained "buy" on the Reit and raised its dividend discount model-based target price to S$2.35 from S$2.25.

Units of MLT closed at S$2.09 on Wednesday, down S$0.01 or 0.5 per cent.