Industrial REITs ‘remain attractive’

Industrial real estate investment trusts (REITs) remain attractive investments, OCBC Investment Research said yesterday as it kept its “overweight” call, citing their healthy debt maturity profiles, increased investment activity and high yields.

In OCBC’s research update, analysts Kevin Tan and Eli Lee said that industrial landlords continued to be very engaged in their capital management activities.

“For the third quarter to date, we note that two industrial REITs, namely AIMS AMP Capital Industrial REIT and Mapletree Industrial REIT, had announced the issuance of fixed-rate notes, while Sabana REIT had entered into a financing agreement for S$258.6 million additional commodity murabaha facilities,” they said.

“Based on our understanding, the proceeds from these issuances will be used to refinance part of their existing borrowings. This is in line with our view that the industrial REIT sub-sector’s debt maturity profile will remain healthy, with limited refinancing risks in the near term,” they added.

The analysts also pointed to a pickup in investment activity during the third quarter, with the most active REIT being Cambridge Industrial Trust, which announced planned acquisitions of properties in Teban Gardens Crescent, Marsiling Industrial Estate and Woodlands Walk for a total of S$97.3 million.

“With just days to the close of the third quarter, we estimate that the total sub-sector acquisition value for the quarter will be at S$182.9 million. This significantly exceeds the S$66 million acquisition size clocked in the second quarter, albeit still lower than the S$678.2 million value registered in the first quarter,” they said.

They maintained their view that sub-sector acquisition activity would likely be skewed towards smaller REITs. They added that further acquisitions in the industrial space might involve a combination of debt and equity, given that the sub-sector aggregate leverage is set to increase after funding committed acquisitions.

“In addition, some REITs – for example, Ascendas REIT and Mapletree Logistics Trust – have also turned to capital recycling via divestments to enhance their portfolio returns, in line with our expectations,” they said.

They retained their “overweight” view on the industrial REIT sub-sector due to its high yields of 7 to 7.1 per cent for fiscal years 2012 to 2013 (forecast) and growth potential.

OCBC Investment Research says: “Cache Logistics Trust remains our preferred pick, given its robust portfolio, healthy financial position and attractive forward distribution per unit yield of 7.1 per cent.”

Cache Logistics Trust units ended 2.1 per cent higher at S$1.24 yesterday, giving it a market capitalisation of about S$870 million.

Source : Today – 28 Sep 2012

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