Singapore Industrial REITs
S-REITs
MAPLETREE INDUSTRIAL TRUST
ME8U.SI
MAPLETREE LOGISTICS TRUST
M44U.SI
CACHE LOGISTICS TRUST
K2LU.SI
AIMS AMP CAP INDUSTRIAL REIT
O5RU.SI
VIVA INDUSTRIAL TRUST
T8B.SI
ASCENDAS REAL ESTATE INV TRUST
A17U.SI
Singapore REITs - Paper Chase
Why are we writing this & recommended action
- We remain confident that a firmer rate regime poses no immediate threat to Singapore industrial REITs.
- S-REITs are up 11.2% YTD, in line with the market. Valuations are well supported by strong investor appetite for yield amid ample liquidity in the system. This is also reflected in the robust demand for perpetual securities, whose issuances were up 115% YoY YTD.
- Mapletree Logistics Trust (MLT) is a clear beneficiary amongst the industrial REIT names. Potential interest savings from refinancing its first perpetual when due in Sep 2017 should boost DPU by an estimated 1-2%.
- Low leverage for the large-cap REITs and depressed cost of capital should quicken the pace of acquisitions in 2H, driving upside to our DPU forecasts and valuations. DPU yield have so far compressed despite firmer rates. Ascendas REIT (AREIT) remains our top sector pick.
Strong underlying demand for yield
- Underlying demand for yield products remains robust amid low interest rates and strong liquidity. As such, the YTD issuance of perpetual securities by Singapore corporates were +115% YoY to SGD3.4b, achieving 98% of the total 2016 value.
- Notably, Mapletree Investment’s 12 May 2017 SGD700m perpetual at 3.95% coupon was priced narrower versus its 19 Jan 2017 SGD625mn perpetual at 4.50%. Following the 25bp Fed rate hike on 14 Jun, SOR fell to 0.76%, now down 0.25% YTD.
- S-REIT dividend yield has steadily compressed to 5.9% versus its 6.4% historical mean.
Potential interest savings for MLT
- Given the ample liquidity, we see potential for Mapletree Logistics Trust (MLT) to realise interest savings from the refinancing of its perpetual securities as we approach the first call date for the 5.375% SGD350m perpetual in Sep 2017.
- By our estimates, a 1% decline in coupon implies SGD3.5m in cost savings, and a 1-2% upside to our FY18-20E DPU forecasts. However, we expect the impact to be relatively muted for the industrial REITs, with average borrowing costs already low at 3.4%, and 2.3-3.0% for the large cap REITs.
- On average only 3.4% and 21.8% of total debt is up for renewal in 2017 and 2018. It is probable that refinancing of some of these issues may be brought forward to 2H 17 or early 2018 to lock in the low rates.
Further catalysts from acquisitions in 2H
- The industrial REITs completed SGD93.0m in acquisitions YTD, primarily due to the completion of Viva’s 6 Chin Bee Avenue transaction announced in Dec 2016, while four divestments have raised SGD73.4m.
- As cost of capital remains depressed, the pace of acquisitions could pick up in 2H 17, which should offer both DPU and valuation upside.
- Our top pick is Ascendas REIT (AREIT), given its sizeable SGD1.1b debt headroom and strong sponsor pipeline.
Chua Su Tye
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2017-06-22
Maybank Kim Eng
SGX Stock
Analyst Report
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