Urban Logistics REIT - Long-term dynamics remain strong

Recently, Urban Logistics REIT (SHED) has fallen to a wide discount rating, as the rising cost of debt and concerns over a protracted recession appear to have hit sentiment towards the logistics property sector. However, the manager states that the long-term trends that have characterised growth in the sector remain and are even more acute in the ‘last mile’ sub-sector that SHED operates. It says that supply of logistics space is at record lows, while demand is robust, with take-up for the first half of the year at record highs.
The strength of SHED’s tenants (86% rated low/low-moderate risk) gives the manager confidence going into a recession, while rental rises in line with inflation should be absorbed by the tenant base due to the essential nature of the goods they distribute, the manager says. Most of SHED’s leases are subject to open market rent reviews, which capture the effects of inflation.
Around 83% of SHED’s debt is fixed or hedged and have an average maturity of over five years, giving it some protection from rising interest rates. New debt facilities will give it extra firepower to expand its portfolio as it looks to take advantage of pricing opportunities in the current market.