Tuesday, December 29, 2015

Industrial REITs

Industrial REITs: In the face of a looming supply glut, the government is moderating its industrial land supply by trimming its 1H16 land sales programme to an eight-year low.

Six sites will be released on the Confirmed List, and four sites under the Reserve List, with total site area of 12.2ha. The last time this was lower was in 1H08, when 9.3ha was released.

For the second time in a row, lease terms of the sites released under the Confirmed List have been cut to 20 years from 30 years. MTI clarified such 20-year leases are meant to make it more affordable for industrialists to custom-build their own facilities.

While some market watchers are unexcited about the shorter lease terms, consultants SLP International opines that this is not a material issue, as these sites, measuring less than 1ha each, are meant for end-users and not for developers or investors.

At latest, Maybank-KE prefers industrial REITs to other subsectors, although the house is generally Underweight the sector. It cites that between 2016 and 2018, supply for industrial space is 1.2x historical demand, contrasting with 1.4x for office and 2x for retail. In 2017-18, supply for industrial should taper below demand.

The house also views that downside in industrial REITs have been priced in. The house prefers Ascendas REIT (Hold, TP $2.28) and Mapletree Industrial Trust (Hold, TP $1.49) for investors seeking exposure.

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