Singapore REITs - Maybank Kim Eng 2017-10-02: Growth Jumpstart

Singapore REITs - Maybank Kim Eng 2017-10-02: Growth Jumpstart MAPLETREE INDUSTRIAL TRUST ME8U.SI MAPLETREE LOGISTICS TRUST M44U.SI ASCENDAS REAL ESTATE INV TRUST A17U.SI AIMS AMP CAP INDUSTRIAL REIT O5RU.SI

Singapore REITs - Growth Jumpstart


Greater growth clarity, led by acquisitions 

  • We remain POSITIVE on industrial REITs, with catalysts from acquisitions and strong DPU in the coming months. 
  • We believe acquisitions jumpstarted after a quiet 1H17, following Mapletree Logistics Trust (MLT)’s announcement of its largest deal to date, Ascendas REIT (AREIT)’s completion of its first FY18 transaction and Mapletree Industrial Trust (MINT)’s push into overseas data centres. 
  • We see opportunities for acquisition-led growth amid low interest rates and strong liquidity, which has driven year-to-date demand of perpetual securities to 135% of 2016 value. 
  • Ascendas REIT (AREIT) and Mapletree Industrial Trust (MINT) should be best placed, given their substantial debt headroom. We could see 1-8% and 4-18% added to their respective DPUs as they chase an estimated SGD200m-1b of deals. We also expect stronger industrial demand in the next 12 months, with growth skewed towards business parks and hi-tech space. 
  • Industrial REITs trade at 7.0% vs the S-REIT’s 6.0%, with DPU accretive deals not yet priced in.


Deal momentum up, supported by debt headroom 

  • Industrial REITs were quiet on acquisitions in 1H17, even as they have divested SGD400.5m of properties year-to-date. But Mapletree Logistics Trust (MLT) last month announced its largest-ever transaction from its sponsor (see our report ‘Mapletree Logistics Trust -Big step small gain’ dated 29 Aug 2017), while Ascendas REIT (AREIT) last week completed its first FY18 acquisition – of No. 100 Wickham St, Queensland - to scale up in Australia. Mapletree Industrial Trust (MINT), meanwhile, has expressed interest to expand into global data centres, backed by its Singapore hi-tech track record (see our report ‘Mapletree Industrial Trust - Upsizing its hi-tech reach’ dated 27 Sep 2017). 
  • We expect momentum to pick up in the coming months, supported by REITs’ debt headroom, at up to 17% of AUM. We see greater traction for Ascendas REIT (AREIT) and Mapletree Industrial Trust (MINT), given their low gearing and clear mandates. We estimate that debt-funded acquisitions could add 1-8% to Ascendas REIT (AREIT)'s DPU, at 7-8% NPI yields and assuming deal bites of SGD200m-1b.


Perpetual securities market also gaining from strong liquidity 

  • Low interest rates and strong liquidity have helped drive demand for yield products, including perpetual securities. Mapletree Logistics Trust (MLT)’s SGD180m 19 Sep 2017 perpetual securities issuance was 6x oversubscribed, while its 3.65% coupon ranks as the lowest ever among S-REIT perpetual securities issues. Its coupon is lower than its Mar 2012 and May 2016 issuances, which yielded 5.38% and 4.18% respectively.
  • Perpetual securities issuances year-to-date by Singapore corporates amount to SGD4.7b or 135% of 2016 value. We expect demand to stay buoyant as SOR is 4% down year-to-date despite a third rate hike expected in Dec 2017 and further three in 2018.


Demand lags improving macros 

  • Demand for industrial space should improve with stronger industrial production. This was up 19% YoY in Aug 2017, following a 21.2% YoY increase in Jul 2017, with upside now to MKE’s GDP growth forecast of 3.0% for 2017. 
  • While leasing transactions have lagged, with Aug 2017 to date transactions down 4.7% YoY, 3,600 SMEs surveyed by the Singapore Business Federation expect capex expansion in the next six months. This hints at a stronger 2018 as industrial production leads factory demand by 12 months, with demand tilted towards business parks and hi-tech space.







Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-10-02
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.900 Same 2.900
BUY Maintain BUY 2.050 Same 2.050
BUY Maintain BUY 1.000 Same 1.000
BUY Maintain BUY 1.600 Same 1.600
HOLD Maintain HOLD 0.950 Same 0.950



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