Leasing market remains soft; even Data Centre segment saw weakness
Generally negative reversions across the Industrial REITs, as oversupply condition persists. Even the Data Centre segment was not spared: Keppel DC REIT gave a -8% reversion to a large client at Keppel DC Singapore 2. Exceptions of positive portfolio weighted average rental reversions during the quarter came from Ascendas REIT (+0.9%) with Mapletree Industrial Trust (+0.7%) lagging behind.
Tenant retention is paramount
As with previous quarters, the situation with tenant retention remains unchanged. REIT Managers continue to focus on tenant retention amid the soft leasing environment. One Manager commented that “it is easier to retain a tenant, than to look for a new one”.
Mindful of downward revaluation of properties
Cache Logistics Trust experienced a downward revaluation for its property at 51 Alps Avenue, triggered by a tenancy contractual dispute. The property was revalued downwards by c.31%, losing 4.0 cents in net asset value (NAV) per Unit and pushing gearing to 41.2% from 39.8%. Other ongoing tenant dispute among the Industrial S-REITs is at Soilbuild Business Space REIT; bearing in mind that the fiscal year-end revaluation for the REIT’s portfolio will be in December. Other obvious candidates for downward revaluation are properties that were converted from a master lease to multi-tenancy lease.
Our “Equal Weight” view on the overall S-REITs sector remains unchanged, and we maintain our “Underweight” view on the Industrial sub-sector.
Cache Logistics Trust – Cautious over the possible overhang of Warehouse space.
Phase One of Hewlett-Packard BTS has obtained its Temporary Occupation Permit (TOP) in October, with Phase Two TOP expected six months later
Kallang Basin 4 Cluster AEI due to be completed 1Q 2018; currently 0% pre-committed
We are mindful of the 32.8% of leases expiring in FY18 in an oversupply landscape; about half of the leases expiring in FY18 come from the Flatted Factories segment
We forecast 11.14/11.59 cents DPU for FY17e/FY18e, which is in line with consensus expectations of 11.1/11.9 cents
Soilbuild Business Space REIT (SBREIT) – Stability from master leases, but weighed down by concerns from Technics Offshore property
We maintain our “Neutral” rating from our results report on 13 October
No master leases expiring in 2017; next master lease expiry will be for Solaris (20% of portfolio by GRI) in August 2018
Concentration risk as Technics Offshore contributes c.7.6% of portfolio GRI
Possibility of downward revaluation for the property if it is converted to multi-tenancy lease
We forecast 6.08/5.95 cents DPU for FY16e/FY17e; this is 0.3%/5.6% lower than consensus expectations of 6.1/6.3 cents
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About the author
Richard Leow Investment Analyst Phillip Securities Research Pte Ltd
Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.
He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.