Monday 23 May 2022

Fall in Singapore Logistics REIT Pricing And Good Potential Rental Reversion Upsides- Good Buy Now for Mapletree Logistics Trust?

The recent price weakness of Logistics REITs, due to inflation fears as well as interest rate hikes, presents a good entry point in this particular asset class segment. Mapletree Logistics Trust, AIMS APAC REIT and ESR-LOGOS market prices have declined significantly over the past 6 months. Locally, there are many positive rental reversion cases in view of the limited warehousing space available. 5 years ago, the whole warehousing space market was in a terrible low occupancy state with rates plunging to S$1.00psf in Western Singapore. Since post COVID era, the cost of space has ballooned to between S$1.50 to S$2.00 at most warehousing facilities.  

1. Take it or leave it attitude of logistics Landlord
Many warehouse landlords have been playing hard ball recently as currently, in particularly in Singapore market, there is excessive demand over available space-virtually, it is a landlord market these days. 

Some landlords have demanded existing tenants with less than 6 months lease left to take up 20%-30% increment in rental rates offer made within a month or their marketing team will put it up for rental in the market. If the offer by new potential tenants exceed the offer, then the existing tenant will need to match it. 

I am surprised by the high handed approach these days relative to 5 years back then, when the landlord's marketing team were begging customers to stay on or fighting with other landlords by snatching each other customers to move to their warehousing facilities with enticement of many months of rent free period and also offering to pay for the transportation/haulage of cargo. 

2. Factors driving up demand and limited supply of warehousing space in the local Market
Current warehouse space are in great demand and short supply mainly due to:

(i)      Government stockpiling programme of essential food and materials due to uncertainties in COVID situation is still on;

(ii)     Many companies hoarding up warehousing space to store their supplies for finished products in the event of the unpredictable disruption to their supply chain and

(iii)    The relatively short land tenure awarded to new warehouse developments, which typically have a lease duration of no more than 20 years (used to be 30yrs), means that there is little incentive for developers to venture into this asset class in Singapore hence as a result, there is a significant lack of new warehouses in the pipeline.
Parting thoughts
Summarizing, it maybe a worthwhile time to pick up some logistics REIT with good exposure to the Singapore warehousing market in view of the high demand and lack of warehousing space. My personal pick is Mapletree Logistics Trust ("MLT"). As an ex-tenant of MLT, dealing with MLT is a nightmare as their property management team is always doing inspections of common areas diligently or nitpicking reinstatement handover and always trying to push back repair costs to tenants. As an investor, I rather like such attitude and culture of their management team. Its portfolio is also geographically well diversified. Most importantly, MLT has the full financial backing of the Singapore government linked Temasek Holdings behind them.  

Of course, the downside risk here is that the stabilization of the COVID pandemic and high interest rate will moderate the hot demand for warehousing space. If so, lower occupancy rates may soon follow and the red-hot warehouse rental reversion rates may start going downhill gradually.

No comments:

Post a Comment