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.
- Target Price: $1.40, BUY.
- Acquisition of 7 Bulim Street was completed on 9 October 2020; annual NPI contribution is c.S$9.2m.
- Remaining retained earnings of c.S$1.0m can be distributed during the year if unutilised.
- Earnings have normalised and will not need any further rental waivers or provisions.
- See AIMS APAC REIT Share Price; AIMS APAC REIT Target Price; AIMS APAC REIT Analyst Reports; AIMS APAC REIT Dividend History; AIMS APAC REIT Announcements; AIMS APAC REIT Latest News.
- Target Price: $1.85, BUY.
- To continue to report positive rental reversions of between 6-14%.
- The purchase of aVance Hyderabad Building 6 and AURUM IT SEZ Building 1 remain on track and should be completed by end of 2020 while Arshiya Khurja warehouse will complete in 1H21.
- Remains committed to growing an added leg of growth within the datacenter space in India.
- See Ascendas India Trust Share Price; Ascendas India Trust Target Price; Ascendas India Trust Analyst Reports; Ascendas India Trust Dividend History; Ascendas India Trust Announcements; Ascendas India Trust Latest News.
- Ascendas REIT announced accretive acquisitions of 2 office buildings in San Francisco; 100% occupied with a long WALE of 9.1 years.
- Equity fund raising of S$1.2bn to fund the acquisition of the 2 San Francisco assets as well as data centres in Europe and another office property in Australia.
- See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.
- Target Price: $0.70, BUY.
- ARA LOGOS Logistics Trust announced the acquisition of a portfolio of 10 properties in Australia valued at S$404.4m.
- Acquisition will increase Australian portfolio exposure to c.48% and lengthen overall portfolio land tenure by 5 years.
- Due to high cost of equity, acquisitions will be dilutive initially; rent escalations and marking to market of rents will lead to future organic growth.
- See ARA LOGOS Logistics Trust Share Price; ARA LOGOS Logistics Trust Target Price; ARA LOGOS Logistics Trust Analyst Reports; ARA LOGOS Logistics Trust Dividend History; ARA LOGOS Logistics Trust Announcements; ARA LOGOS Logistics Trust Latest News.
- Target Price: $0.43, BUY.
- S$3.5m of retained earnings were distributed by ESR REIT in 3Q20, and the remainder S$3.5m is expected to be distributed in 4Q20.
- Announced the redevelopment of 19 Tai Seng Avenue into a high-specification industrial building that will be completed in 2H21.
- Proposed merger with Sabana REIT (SGX:M1GU) likely to be delayed; awaiting regulatory approvals for the issuance of scheme documents and EGM.
- See ESR REIT Share Price; ESR REIT Target Price; ESR REIT Analyst Reports; ESR REIT Dividend History; ESR REIT Announcements; ESR REIT Latest News.
- See recent report: ESR-REIT - DBS Research 2020-10-30: Forging Ahead To Leave COVID-19 Behind.
- Target Price: $3.25, BUY.
- Mapletree Industrial Trust's 2Q20 NPI increased 2.0% y-o-y mainly due to income contribution from the 14 data centres acquired in the previous year, partially offset by rental rebates in Singapore.
- Announced the acquisition of a data centre in Virginia for US$200-262m.
- c.S$13.7m in provisions for rent rebates have been made to date and should be more than sufficient.
- See Mapletree Industrial Trust Share Price; Mapletree Industrial Trust Target Price; Mapletree Industrial Trust Analyst Reports; Mapletree Industrial Trust Dividend History; Mapletree Industrial Trust Announcements; Mapletree Industrial Trust Latest News.
- See recent report: Mapletree Industrial Trust - DBS Research 2020-10-29: Fuel For The Digital World.
- Target Price: $2.35, BUY.
- Mapletree Logistics Trust 's 1H20 NPI increased 10.4% y-o-y due mainly to the contribution from acquisitions as well as higher contribution from existing properties.
- Announced S$1.2bn in acquisitions for a portfolio of properties in Malaysia, Vietnam, China and Australia.
- Pending EGM to seek unitholders’ approval for the S$1.0bn portfolio acquisition from it Sponsor.
- See Mapletree Logistics Trust Share Price; Mapletree Logistics Trust Target Price; Mapletree Logistics Trust Analyst Reports; Mapletree Logistics Trust Dividend History; Mapletree Logistics Trust Announcements; Mapletree Logistics Trust Latest News.
- See recent report: Mapletree Logistics Trust - DBS Research 2020-11-11: Gateway To Asia’s Burgeoning Logistics Sector.
- Target Price: $0.50, BUY.
- Earnings to return to normality as rental rebates have already been provided for previously.
- S$0.6m of provisions were distributed in 3Q20, and the remaining S$0.6m of provisions are expected to be distributed in 4Q20.
- Strong take up rates at Solaris, Tuas Connection and West Park BizCentral led to a 3.4% increase in portfolio occupancy to 92.9%.
- See Soilbuild REIT Share Price; Soilbuild REIT Target Price; Soilbuild REIT Analyst Reports; Soilbuild REIT Dividend History; Soilbuild REIT Announcements; Soilbuild REIT Latest News.
- Target Price: $1.85, BUY.
- Frasers Logistics & Commercial Trust's FY20 DPU increased 1.7% due mainly to the merger with FCOT and acquisitions; expected to increase by an additional 7.7% in FY21 from full-year contributions.
- Logistics portfolio recorded some negative rental reversions while commercial portfolio reported positive reversions: FY20 average rental reversion of -0.1%.
- Debt headroom of more than S$1.6bn very conducive for further acquisitions from Sponsor’s pipeline valued at more than S$5.0bn.
- See Frasers Logistics & Commercial Trust Share Price; Frasers Logistics & Commercial Trust Target Price; Frasers Logistics & Commercial Trust Analyst Reports; Frasers Logistics & Commercial Trust Dividend History; Frasers Logistics & Commercial Trust Announcements; Frasers Logistics & Commercial Trust Latest News.
- See recent report: Frasers Logistics & Commercial Trust - DBS Research 2020-11-09: Powering Into FY21.
- Target Price: $2.80, HOLD.
- Keppel DC REIT's 3Q20 DPU increased 22.1% y-o-y due mainly to acquisitions and organic growth in earnings.
- Portfolio occupancy improved to 96.7% and expected to increase further due to leases signed at Keppel DC SG1 and SG2 in October 2020.
- Low gearing of 35.2% and low cost of equity continues to provide Keppel DC REIT with a very conducive environment for acquisitions.
- See Keppel DC REIT Share Price; Keppel DC REIT Target Price; Keppel DC REIT Analyst Reports; Keppel DC REIT Dividend History; Keppel DC REIT Announcements; Keppel DC REIT Latest News.
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:
- Keppel DC REIT has yet to report any acquisitions in FY20 but we believe that potential acquisitions from 3rd parties should happen sooner rather than later.
- Recent equity fund raising provides Mapletree Logistics Trust with headroom for further debt-funded acquisitions in Australia, Japan, Malaysia, Vietnam and Korea.
- Frasers Logistics & Commercial Trust: Acquisition pipeline from Sponsor that is valued at more than S$5.0bn.
- See PDF report attached below for complete analysis.
- See also the recent reports on S-REITs:
Derek TAN
DBS Group Research
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Dale LAI
DBS Research
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https://www.dbsvickers.com/
2020-11-18
SGX Stock
Analyst Report
2.350
SAME
2.350
0.500
SAME
0.500
1.850
SAME
1.850
2.800
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2.800
0.430
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0.430
3.250
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3.250
1.400
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1.400
0.700
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0.700
1.850
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1.850