Industrial REITs in Singapore (Which to pick) 28th June 2017

If you love yields, you should consider industrial REITs. 

Industrial REITs, typically give the highest yields relative to the other type of REITs. This is because of a few reasons 

1) Industrial REITs enjoy low property upkeep and repair expense

2) Capital Gains have already been priced into the yields, due to their low remaining land lease years

3) Singapore Government long term objective is to lower the cost of doing business in the country, as such there will always be problems of oversupply of industrial properties- typically flatten factories and light industrial

But if you don't mind the reasons above, here are 3 top Singapore listed industrial REITs, i would suggest looking into. (My opinion) 

Ascendas REITs

Good points

+ Largest business and industrial REIT listed on the Singapore Exchange

+ Part of the FTSE Straits Times Index

+ Well Diversified

+Properties are located in two countries, Singapore (103 properties) and Australia   (29 properties)

+Ascendas REIT’s tenants come from more than 20 industries and there’s no industry which makes up more than 10.8% of its gross revenue

+Has more than 1300 tenants

+ Most of their Singapore Industrial properties are located near major expressways, seaports and near the airport

+ Their Australia industrial properties are located near major transport infrastructure

+ Have a track record of divesting properties at a profit.

Example:

Divestment of the property to Sengkang Import & Export at profit of $S7.28million (Original price $S12m)

Divestment of A-REIT City@Jinqiao business park property in Shangha at a profit of $S99.3m

+ Healthy balance sheet, total gearing level is about 34%. Have room to grow ($2.1billion to reach 45% gearing limit)

+Management is only paid performance fees is there is growth of at least 2.5% in DPU

Points to be concerned

-Although occupancy has improved slightly. Ascenads REIT’s total occupancy rate is only 90.2% (Dec 2016) indicating that nearly 10% of its portfolio is not occupied by tenants.

-Average debt maturity is 3.3 years only. Most of the debt will be refinanced in 2017-2020; given raising interest rates, debts could be refinanced at higher cost

-Portfolio weighted average lease to expiry (WALE) is 4.3 years. About 64.5% of lease expiries are up for renewal between FY17 to FY22. Lease renewals gives tenants the opportunity to negotiate rentals. Lower rentals equate to lower future DPUs

  

Mapletree Logistics Trust (MLT)

Good points

+ Properties are even more diversified (in terms of Geography) for MLT. Based on revenue 42.2% comes from Singapore, 15% from Hong Kong, 18.3% from Japan, 9.2% from South Korea, 7.8% from China with Australia, Malaysia, Vietnam making the rest of the portfolio

+127 properties as at 31^st March 2017

+Portfolio occupancy 96.3% March 2017. Very high as compared to industry standards  

+ Regarding investment returns. MLT has an Impressive track record. Steady growing revenue, net property income, DPU since FY2011

+Divestment wise, similar to Ascendas REIT, MLT does divestment with gains between $2m to $8m

+Have been scaling up presence in countries like South Korea, Vietnam and most recently in Australia. Added 8 properties in Australia (Sydney; Victoria) , 1 property in Malaysia, 1 in Vietnam

+Special mention about their Australia properties, their WALE by revenue is 5.5 years to 6.4 years, much higher than the typical WALEs for Singapore industrial properties

+Maintained a well-staggered debt maturity profile with weighted average debt duration increased to 3.9 years from 3.5 years

Points to be concerned

-21.4% of leases are expiring in FY18/19

-15.3% of leases are expiring in FY19/20

Mapletree Industrial Trust (MIT)

Good points

+ 86 properties, many of which are close to public transportation networks and near established industrial estates

+Distributable income and DPU remains strong and are increasing

+ Occupancy remains at 93.1%, better than Ascendas, relatively comparable to MLT

+Debt maturity profile, average tenor is 3.5 years. 30.2% of debts will be refinanced in FY19/20

+All the mapletree related reits have proactive managers and proactive strategies in place, such that they are able to optimise returns through divestment and redevelopments. Example

Selling away 65 Tech Park Crescent for a profit of $S4.4m

Points to be concerned

- Only focused on industrial properties in Singapore

- 41.4% are flatted factories , only 15.1% are business park buildings

-Currently there an oversupply for flatted factories in Singapore and demand for factory space has weakened  

-Portfolio WALE is only 3.1 years, lower than MLT and Ascendas

-More than 65% of leases will be expiring in the coming 3 years, this will give raise to the risks of renewing rentals at a lower rate