FRASERS LOGISTICS & IND TRUST (SGX:BUOU)
MAPLETREE LOGISTICS TRUST (SGX:M44U)
Industrial REITs - Smart Warehouses To Revitalise Traditional Industrial Spaces
Single-User Factory rents marked growth amidst stagnant industrial rents
- The 4Q18 industrial rental index for all segments remained unchanged from the previous quarter, according to JTC. This comes after rents successively declined 0.1% q-o-q for four quarters. The Single-User Factory was the sole segment that recorded positive rental growth by a marginal 0.6%, while the Multiple-User Factory, Business Park and Multiple-User Warehouse segments all dipped by 0.1% q-o-q.
- Looking ahead, CBRE has projected a stable 1.5% y-o-y growth for prime logistics rents to S$1.36 psf/month for 2019, with rents expected to increase further to $1.38 psf/month in 2020 due to healthy demand by third-party logistics providers (3PLs) and e-commerce players. However, flat growth is expected in 2021 as a result of a global slowdown.
- Singapore’s manufacturing growth slowed again, with the Manufacturing Purchasing Managers’ Index (PMI) for February 2019 contracting 0.3 pts to 50.4, which is at the low end of the expansionary zone. The key Electronics sector PMI that entered the contractionary phase in November declined further to 49.5. This marks the sixth monthly sequential decline for both PMI indicators.
Ministry of Trade and Industry decides to limit pipeline supply
- New industrial space supply in 2018 reached a record low of 545k sqm as compared to the 5-year historical average of 1.6m sqm. Looking ahead, the Ministry of Trade and Industry’s has decided to cut the permissible maximum supply under the Industrial Government Land Sales (IGLS) programme in 1H19 by 5.6% to 252.6k sqm as compared to the 2H18 IGLS.
- In terms of physical supply, JTC highlighted that another 1.5m sqm of industrial space is expected to come on-stream in 2019, which makes up ~3% of the current stock. Of this, the multiple-user factory segment will contribute ~303k sqm.
- Historically, the average annual demand and supply of industrial space in the past three years was 1.1m and 1.4m sq ft, respectively, according to JTC.
Smart warehouses: the next generation of warehouses
- According to the Economic Development Board, Singapore’s Smart Nation plan includes a Smart Logistics initiative to harness supply chain technologies for 3PL providers and cargo owners. It is projected to deliver annual cost savings of US$56m and a productivity gain of 4,000 man-years. This has driven the demand for smart warehouses as more 3PLs are looking to incorporate robotics into their warehouse systems.
- Supply Chain City in Jurong is a 2m sq ft area equipped with a patented world pioneering Fusionaris® design that costs over S$200m, and supports robotic supply chain activities and 24/7 operations; Coca Cola revealed the first local warehousing facility with automated in-built storage and retrieval systems atop loading and unloading bays; while DHL’s Advanced Regional Centre in Tampines has a multi-customer automation system which improved picking efficiency by 20% and takes up 40% less space than conventional warehouses.
- Smart industrial spaces require higher building specifications such as higher floor-loading capacity, higher electrical loading and fibre optic infrastructure, JLL Research stated. Industrial REITs will need to upgrade their spaces to cater to this growing demand for Industry 4.0 services, although rent volume is expected to decrease as tenants increasingly adopt space-efficient technologies.
- In November 2018, Infocomm Media Development Authority announced that it would set aside S$14m to partner with Ascendas-Singbridge Group and JTC to trial innovative urban solutions for future industry spaces and business parks. We believe this will ease the transition for industrial REITs looking to upgrade their facilities.
Lacklustre operating metrics across the sector
- Occupancy rates for industrial REITs remained relatively unchanged q-o-q in 4Q18, with only CACHE LOGISTICS TRUST (SGX:K2LU) registering a decline of 1.9 ppt to 95.0%. SABANA SHARI'AH COMPLIANT REIT (SGX:M1GU) led occupancy growth rates with a 3.0 ppt increase to 84.4% while SOILBUILD BUSINESS SPACE REIT (SGX:SV3U)’s occupancy climbed 2.3 ppt to 89.5%.
- Meanwhile, it was a different picture for rental reversions, with majority posting negative figures. The biggest declines came from
- AIMS AMP CAP INDUSTRIAL REIT (SGX:O5RU) (-24.6%),
- SOILBUILD BUSINESS SPACE REIT (SGX:SV3U) (-12.6%) and
- CACHE LOGISTICS TRUST (SGX:K2LU) (-4.4%)
- MAPLETREE LOGISTICS TRUST (SGX:M44U) (+4.5%) and
- ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) (+3.2%).
- Within this space, we continue to like FRASERS LOGISTICS & IND TRUST (SGX:BUOU) [Rating: BUY; Fair Value: S$1.19] and MAPLETREE LOGISTICS TRUST (SGX:M44U) [Rating: BUY; Fair Value: S$1.50].
- We note that Frasers Logistics & Industrial Trust recently announced that it would be included in the FTSE EPRA/NAREIT Global Real Estate Index Series from 19 Mar 2019. This is a leading benchmark index for institutional real estate investors. We expect this development to help improve Frasers Logistics & Industrial Trust’s liquidity. Since the announcement, we note that PRUDENTIAL PLC (SGX:K6S) has acquired 8.8m Frasers Logistics & Industrial Trust shares, bringing its stake from 4.8% to 5.2% and thus becoming a substantial unitholder.
Andy Wong Teck Ching CFA
OCBC Investment Research
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Deborah Ong
OCBC Investment
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Joseph Ng
OCBC Investment
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https://www.iocbc.com/
2019-03-12
SGX Stock
Analyst Report
1.190
SAME
1.190
1.500
SAME
1.500
