SINGAPORE (Aug 18): Phillip Research is maintaining its “equal weight” rating on Singapore’s Industrial REIT sub-sector.
In a Friday report, analyst Richard Leow says the outlook of negative reversions is likely to persist in 2H17, according to the REIT managers.
Among the five Industrial REIT the research house covers, Ascendas REIT (A-REIT) reported a positive 1.1% reversion, but this was due to a one-off effect from first-cycle renewals at Aperia.
If it were not for the one-off effect, A-REIT would have seen a negative reversion.
The other casualties of negative reversions were Mapletree Industrial Trust (MINT), Soilbuild Business Space REIT (SBREIT) and Cache Logistics Trust.
“Our previous view was for rents to bottom in 2017. We now believe rents to bottom only by the end of 2018,” says Leow.
Although managers were generally seeing more enquiries y-o-y and q-o-q, Leow says it is still a tenant’s market as tenant retention and maintaining occupancy remains top priority for the managers. This will put pressure on rents.
Lower rents y-o-y in 2017 will negatively impact year-end property valuations and in turn have the effect of raising aggregate leverage as the existing debt is across a smaller asset base.
“With the recent runup in prices of the Industrial REITs, our view is that positive expectations have been factored in, and there is now a greater probability for disappointment rather than a positive surprise. We would like to see occupancy to improve, in order to upgrade our sector view for Industrial REITs,” says Leow.
As at 3.58pm, units in A-REIT, MINT, SBREIT and CacheLog are trading at $2.65, $1.85, 72 cents and 88 cents respectively.
