Manufacturing activities have seen some recovery this year but are slowly losing its momentum. Sustained recovery is expected from the street to begin only in 2H2018.
The slowing manufacturing growth sentiments might affect industrial REITs as manufacturers will look at its current production capacity before deciding to expand.
In 1Q2017, the take-up of industrial space is lower than the increase in supply, which has resulted in a net increase in unoccupied industrial space. To make the matter worse, data from Jurong Town Corporation implied an increase of 9.0% of supply in the next four years.
DBS Research analysts expect the Business Parks to be the only subsector in industrial REITs to perform fairly well.
Given the limited opportunities available in Singapore, industrial REITs are following the strategies adopted by fellow SREITs in other sectors by expanding overseas. Australia is a popular destination for industrial REITs given their longer weighted average lease expiry (WALE).
Here are three REITs DBS Research highlighted in their report that retail investors could consider.
1. Ascendas REIT
Ascendas REIT (AREIT) is popular with investors that are chasing yield given its ~6.0% yield. The strong ability of AREIT’s manager to drive value and growth in the various market cycles is also an important factor given the headwinds in the industry.
It is in a position to continue to benefit in the current market condition given its large exposure to the resilient Business Park segment which accounted for 37% of its earnings.
With a gearing ratio of ~35%, AREIT still has the ability to take on more debts to purchase new properties to spike the flat rental outlook. AREIT is currently looking at purchasing properties in both Australia and Singapore.
Even if recovery in the sector takes longer than expected, it will not affect AREIT as much given that it has diversified into Australia and China.
Rising of interest rates continue to be another key risk in the industry as it will raise the cost of funds and lead to a narrower yield spread. Currently, an estimated 80% of its debts are hedged to fixed rates.
Analysts from DBS Research reiterated their “Buy” call for Ascendas REIT (SGX: A17U) with a target price of $2.78.
2. Frasers Logistics & Industrial Trust
As the only pure Australian play industrial REIT listed in Singapore, Frasers Logistics & Industrial Trust (FLT) is aggressively expanding and has proposed to acquire an additional seven properties in Australia that are financed through equity raising.
The strong WALE of 6.9 years give investors visibility towards its earnings and a strengthening Australian Dollar could be upside surprise.
Further acquisition will still be possible given the low gearing ratio of 33% and there are still 11 more properties in the sponsor’s pipeline.
Currently, FLT is able to offer investors a high yield of 6.9% and the target acquisitions have an average yield of 6.43%.
Analysts from DBS Research reiterated their “Buy” call for Frasers Logistics & Industrial Trust (SGX: BUOU) and gave it a target price of $1.15.
3. Mapletree Industrial Trust
Mapletree Industrial Trust (MINT) offers investors a yield of 7.0% with its distribution growing steadily between 3.0% to 4.0%.
It owns a large range of industrial properties across Singapore including business parks, hi-tech industrial buildings, ramp-up buildings and flatted factories. That makes it vulnerable should sentiments for manufacturing continue to stay low. However, the multiple built to suit properties will bring in some support.
In comparison to the other two industrial REITs, MINT has a lower public float of 53.8 percent and a better profile of major investors. Both Schroders and AIA owns 7.0% and 5.0% of MINT respectively and are known to hold on to their investments over the long term.
Analysts from DBS Research reiterated their “Buy” call for Mapletree Industrial Trust (SGX: ME8U) gave it a target price of $1.94.
We managed to invite a few popular names in the finance and investment education world to speak at our upcoming Shares Investment Convention on 16 September 2017 (Saturday)!
They’ll be covering topics on personal finance, macroeconomics and investment strategies to help retail investors make more shrewd decisions especially in the current uncertain and volatile economy. Click on the button above to learn more and grab your early bird tickets. See you there!
P.S. Don’t forget to enter promo code “SHARES10” for a $10 discount!