Singapore REITs - RHB Securities 2015-09-01: Not Yet For Bottom-Fishing (Industrials Sector)

Singapore REITs  Industrial Sector 

Industrials: Occupancy Likely to be Hurt Further 

  • Since the authority Jurong Town Corporation (JTC) introduced the new subletting policy in Oct 2014, we have already seen some impact on occupancy levels in some of the industrial REITs under our coverage. 
  • We note that although occupancy levels for the REITs did not decline in a significant manner, we expect occupancy for the industrial space to decline further progressively as industrial landlords face increasing difficulty in filling up the vacant space with tenants. 
  • The latest quarter sees a dip in occupancy rates for Mapletree Logistics Trust (MLT SP, NEUTRAL, TP: SGD0.93) and Cache Logistics Trust (CACHE SP, NEUTRAL TP: SGD0.97) to 96.7% (1Q15: 97.6%) and 98.3% (1Q15: 98.3%) respectively. This was mainly due to the conversion of single-user assets (SUAs) to multi-tenanted buildings (MTBs). 
  • As for Ascendas Real Estate Investment Trust (AREIT SP, BUY, TP: SGD2.35), occupancy level for its overall portfolio was not affected as it is well-exposed to sub-segments such as business parks – the best sub-sector within the industrial segment today. 
  • Moving forward, we do not expect any growth within the industrial segment. As landlords find it increasingly difficult to retain tenants, we expect rents to remain affordable so as to retain existing tenants in the market. Therefore, we think that it will likely be more difficult for the industrial REITs to book in positive rental reversion in years to come. 
  • In addition, the supplies for both factory and warehouse spaces are unfavourable due to large incremental supply in the next two years. This should put further pressure on landlords’ pricing negotiations with tenants in the next two years. 
  • Despite the headwinds faced by the industrial sub-sectors, our team maintains NEUTRAL on the industrial REITs segment, as the segment is still providing high dividend yields in the range of 6.5% to 9.5%.

Ivan Looi | Ong Kian Lin | http://www.rhbgroub.com/ RHB Securities 2015-09-01
NEUTRAL Maintain NEUTRAL 0.93 Same 0.93
NEUTRAL Maintain NEUTRAL 0.97 Same 0.97
BUY Maintain BUY 2.35 Same 2.35