SINGAPORE (Oct 3): Maybank Kim Eng Research is keeping its “positive” rating on industrial REITs, on the back of strong acquisition-led growth.
The industrial REIT sector sat through a quiet first half of 2017, but has seen its growth jumpstarted by a couple of deals in the past month.
Mapletree Logistics Trust (MLT) in late August announced its largest acquisition to date, buying an 11-storey modern ramp-up warehouse in Hong Kong, Mapletree Logistics Hub Tsing Yi, from its sponsor for HK$4.8 billion ($834.8 million).
See: Mapletree Logistics Trust to acquire Hong Kong warehouse for $834.8 mil
Then, Ascendas REIT (AREIT) last week acquired a freehold 14-storey office building property at the CBD fringe in Queensland, Australia for A$83.8 million ($89.8 million).
See: Ascendas REIT acquires CBD fringe office property in Australia for $90 mil
Meanwhile, Mapletree Industrial Trust (MINT) has signalled the expansion of its investment strategy to include data centres. The change in investment strategy will be effective from Oct 26.
See: Mapletree Industrial Trust expands investment strategies to data centres
“We expect momentum to pick up in the coming months, supported by REITs’ debt headroom, at up to 17% of assets under management (AUM),” says Maybank analyst Chua Su Tye in a Monday report. “We see greater traction for AREIT and MINT, given their low gearing and clear mandates.”
According to Chua, AREIT and MINT could deals between an estimated $200 million and $1 billion. This could add 1-8% and 4-18% to their DPUs, respectively.
In addition, Chua expects stronger industrial demand in the next 12 months with growth skewed towards business parks and hi-tech space, on the back of stronger industrial production.
Singapore's industrial production remained on a roll in August, with manufacturing output growing 19.1% from a year earlier, growing more than expected due to robust electronics output.
See: Singapore August factory output rises 19.1% on-year
See also: Huge pickup for Singapore economy expected as global growth revives
At the same time, Chua says that low interest rates and strong liquidity have helped drive demand for yield products, including perpetual securities.
“Perps issuances year-to-date by Singapore corporates amount to $4.7 billion, or 135% of 2016 value,” says Chua. “We expect demand to stay buoyant as SOR (swap offer rate) is 4% down year-to-date, despite a third rate hike expected in Dec 2017 and further three in 2018.”
Maybank has “buy” calls on AREIT and MINT, with target prices at $2.90 and $2.05, respectively.
As at 12.26pm, units in AREIT are trading 1 cent lower at $2.67 and units in MINT are trading 1 cent lower at $1.87, implying expected FY17 dividend yields of 5.9% and 6.1%, respectively.
