SINGAPORE (July 3): Maybank Kim Eng is staying “positive” on Singapore industrial REITs as it expects sector fundamentals to bottom out in 2017 on peaking supply and the acceleration of manufacturing growth momentum.
“Further ahead, Singapore’s economic remodeling efforts should steer industrial demand needs towards hi-specs factories and business parks,” notes analyst Chua Su Tye in a Saturday report.
In Chua’s view, smaller plot and supply measure tweaks made through recent government initiatives are “clearly aimed at strengthening small medium enterprise (SME) support” – which in turn suggests that the manufacturing upturn remains intact.
He also recalls how modest growth in land availability as reflected in Singapore’s land sale programme for 2H17 remained within expectations, with sites on the confirmed list potentially increasing supply by 9% from 2019.
“We remain constructive on the industrial REITs on bottoming sector fundamentals in 2017, with upside growth levers from acquisitions and redevelopment opportunities,” says Chua.
As such, Maybank’s top sector pick remains as Ascendas REIT (A-REIT) with a price target of $2.90 as the best proxy to the Singapore REIT sector’s structural recovery.
The research house also continues to like the REIT for its rising business park assets under management (AUM) contribution, sizeable $1.1 billion debt headroom and strong sponsor pipeline.
Mapletree Industrial Trust (MIT), AIMS AMP Capital Industrial REIT and Viva Industrial Trust (VIT) have also been rated “buy” with respective price target estimates of $2.05, $1.60 and 95 cents.
Meanwhile, Chua notes that the Ministry of Trade and Industry’s (MTI) Industrial Government Land Sales (IGLS) for 2H, which saw a modest increase after declining for three consecutive half year periods, is within expectations.
In his opinion, it continues to reflect the government’s efforts in managing industrial land availability to pace alongside a recovering manufacturing growth outlook.
“This should continue to support both prices and rents as existing supply gets absorbed,” he adds.
Looking ahead, the analyst thinks there could be further tweaks to the IGLS which are aimed to sustain support for SME tenants.
This should also reduce pressure on industrial sector landlords in their retention efforts, adds Chua.
“The IGLS notably remains targeted at the SMEs, with all sites on the confirmed list zoned B2 on shorter 20-year land tenures, and sized below 0.6ha on average. A set of minimum building specification requirements introduced in Jan 2012, has also been waived for small IGLS plots (below 1ha), which should help in easing land acquisition and occupancy costs,” concludes the analyst.
Units of A-REIT, MIT, AIMS AMP and VIT closed at $2.62, $1.85, $1.48 and 90 cents on Monday, respectively.
