Singapore Industrial REITs - DBS Research 2020-11-18: Back On The Acquisition Path

Singapore Industrial REITs - DBS Research | SGinvestors.io MAPLETREE LOGISTICS TRUST (SGX:M44U) SOILBUILD BUSINESS SPACE REIT (SGX:SV3U) FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) KEPPEL DC REIT (SGX:AJBU) ESR-REIT (SGX:J91U) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) AIMS APAC REIT (SGX:O5RU) ARA LOGOS LOGISTICS TRUST (SGX:K2LU) ASCENDAS INDIA TRUST (SGX:CY6U)

Singapore Industrial REITs - Back On The Acquisition Path

  • Manufacturing sector continues to surprise; fourth straight month of expansion in October, setting the stage for firms to expand.
  • Landlords resume regular rental collections and have started to distribute retained income; high earnings visibility a welcome trait.
  • Industrial S-REITs on a growth trajectory with c.S$5.0bn in acquisitions announced year-to-date; more expected in 1H21.
  • See S-REITs' Share Price Performance. Recent share price correction has put many industrial S-REITs back into value territory, and mid-cap REITs continue to offer attractive dividend yields.



Industrial REITs - Key observations


Business as usual.

  • During the height of the COVID-19 outbreak, industrial activity was severely affected with many businesses temporarily ceasing operations and supply chains were severely disrupted. With the worst of the pandemic seemingly past its worst, businesses gradually reopened in 3Q20, and the industrial sector has rebounded very quickly.
  • In August 2020, Singapore’s manufacturing output rose by 13.7% y-o-y. The rebound in industrial production was led by the electronics and precision engineering sectors. Although the general manufacturing and transport engineering sectors continue to weigh on manufacturing output, the government continues to support these industries with numerous schemes and assistance packages.

Government assistance for affected businesses.

  • The Singapore government has been quick to provide support by injecting liquidity (access to loans) and providing subsidies under the Jobs Support Scheme (JSS) and various grants to support cashflows for small medium enterprises (SMEs). Landlords on the other hand had to play their part by passing on property tax rebates as well as providing c.1 month of rental rebates to SME tenants adversely affected by the pandemic.
  • The mandated rental rebates and deferrals were no doubt a downside risk to earnings for landlords, but the impact was mostly one-off. In addition to making provisions for these rebates, several landlords took the prudent approach to retain a portion of their income during the first half of 2020. As operations resumed and rental collections returned to normalcy, these landlords have started to distribute part of the unutilised retained income and reversed some provisions made in earlier quarters.

AIMS APAC REIT (SGX:O5RU)


Ascendas India Trust (SGX:CY6U)


Ascendas REIT (SGX:A17U)


ARA LOGOS Logistics Trust (SGX:K2LU)


ESR REIT (SGX:J91U)


Mapletree Industrial Trust (SGX:ME8U)


Mapletree Logistics Trust (SGX:M44U)


Soilbuild REIT (SGX:SV3U)


Frasers Logistics & Commercial Trust (SGX:BUOU)


Keppel DC REIT (SGX:AJBU)



What are we watching?


Year-end portfolio valuations.

  • The prolonged COVID-19 pandemic as well as risk of a second wave has led to economic uncertainties as we move into FY21. It would be interesting to see how future rent expectations of property valuers and consultants have changed.
  • Although most industrial S-REITs have ample debt headroom even if valuations decline, we will be keeping a closer watch on those with gearing of more than 40% currently as declines in portfolio valuations would further limit their financial flexibility.


Industrial REITs - Valuations


Large cap industrial S-RETIs continue to trade at wide premiums to mid-cap REITs.

  • Despite some share price correction in the large-cap indusrial REITs (Ascendas REIT, Frasers Logistics & Commercial Trust, Keppel DC REIT, Mapletree Industrial Trust, Mapletree Logistics Trust) in recent days, they are still trading at an average P/NAV ratio of 1.7x as compared to 1.0x for the mid-cap REITs. The spread of 0.7x between the large-cap and mid-cap industrial REITs has been the widest historically.
  • As investors continue to focus on larger names for their liquidity and ability to deliver stable earnings through their more diversified portfolios, we aso note that the portfolio quality of the mid-cap REITs are not worse off. For instance, Soilbuild REIT and ESR REIT have one of the highest concentration of business park properties in their portfolios that have displayed resilience over the past few quarters. For ARA LOGOS Logistics Trust and EC World REIT (SGX:BWCU), their entire portfolio of logistics and warehouse facilities have benefitted from the growth of the e-commerce industry and demand for stockpiling during this COVID-19 pandemic.

Industrial REITs with overseas exposure provide income diversification.

  • With the rent rebates mandated by the Singapore government, industrial landords had to provide at least 1 month of rent rebates and allow rent deferments for affected SMEs. The impact to earnings was however varied as industrial S-REITs with a larger overseas portfolio were less affected, while those with a larger portfolio in Singapore had to set aside some income for provisions.
  • ESR REIT, AIMS APAC REIT and Soilbuild REIT have the largest proportion of Singapore assets in their respective portfolios and would have the most significant impact. With the worst of the pandemic likely to be over, earnings have stabilised and all three REITs have started to distribute unutilised retained earnings in 3Q20. Looking ahead, they are expected to distribute the rest of the retained earnings in 4Q20 and hence, distributions are expected to further improve.

Growth trajectory for industrial REITs have resumed.

  • In the latest 3Q20 results announcements, industrial S-REITs reported that previously planned AEIs and redevelopment projects have resumed although some delays are expected. In addition, ESR REIT and Soilbuild REIT have also announced the commencement of redevelopment projects to convert older properties into high-spec and modern logistics properties.
  • Despite the challenging year and many uncertainties brought about by the COVID-19 pandemic, industrial S-REITs have announced c. S$5.0bn worth of acquisitions to date. Most of these acquisitions are accretive and will compliment the REITs’ other organic growth drivers.
  • See also recent SGX market updates: S-REITs Continued to Pursue Acquisitions.

Market chatter on the following names:






Derek TAN DBS Group Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2020-11-18
SGX Stock Analyst Report BUY MAINTAIN BUY 2.350 SAME 2.350
BUY MAINTAIN BUY 0.500 SAME 0.500
BUY MAINTAIN BUY 1.850 SAME 1.850
HOLD MAINTAIN HOLD 2.800 SAME 2.800
BUY MAINTAIN BUY 0.430 SAME 0.430
BUY MAINTAIN BUY 3.250 SAME 3.250
BUY MAINTAIN BUY 1.400 SAME 1.400
BUY MAINTAIN BUY 0.700 SAME 0.700
BUY MAINTAIN BUY 1.850 SAME 1.850



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