SINGAPORE (Aug 3): Maybank Kim Eng Research is remaining “positive” on the Singapore REIT (S-REIT) scene, noting stronger occupancies across the industrial subsectors even as rental reversions, except for business parks, remained weak.
In a Thursday report, analyst Chua Su Tye has identified business parks as the research hosue’s preferred subsector as he believes it has better visibility from limited near-term supply. According to him, business parks continue to be the bright spot within the subsectors, with rents up 2% y-o-y and vacancy improving to 14.3%.
Ascendas REIT (A-REIT) continues to be Maybank’s top “buy” pick within the sector with a price target of $2.90, having reported a 1.7% increase in rental reversions on the strength of its business parks and integrated development.
Like A-REIT, Mapletree Industrial Trust (MINT) has also seen strong occupancies in Singapore from stabilisation in asset conversions, as well as contribution from improving overseas drivers. The trust has been rated “buy” with a $2.05 price target.
Among the small caps, Chua says Viva Industrial Trust (VIT) saw strong results over the quarter led by post-asset enhancement initiative (AEI) gains at its Viva BP and successful backfilling at Jackson Square. This is an exception compared to other its REIT counterparts which reported the weakest rental reversions, and has led the analyst to rate Viva at “buy” with a $1 price target.
Looking ahead, the analyst expects industrial supply to rise 5% and 1.9% on-year in 2017 and 2018 respectively, as concentrated new industrial space in warehouses and factories are expected to add to existing stock.
“At a recent dialogue, JTC shared openly its longer term plans for new industrial clusters in Jurong, Woodlands and Punggol, which in aggregate adds 600ha to industrial land stock over the next 5-20 years. Notably, we see a potential relaxation in policies to enable land use flexibility, as JTC pilots its new guidelines, to back new growth industries and to support SMEs,” says Chua.
“We expect occupancies and rent for business parks to be well-supported, given the limited supply, which should benefit A-REIT, MINT and Viva.”
Overall, the analyst sees sector fundamentals bottoming out this year as supply peaks and demand mean reverts, with upside to rents and occupancies as manufacturing growth accelerates.
“We are still looking for rents to bottom in 2017, and recover in 2018, helped by weaker asset conversion pressures, and positive manufacturing growth momentum,” says Chua.
As at 2.26pm, units of A-REIT, MINT and VIT are trading at $2.67, $1.84 and 92 cents respectively.
