It has available debt capacity of about $193m to fund acquisitions

MACARTHURCOOK Industrial Reit (MI-Reit) yesterday got a first-time Baa3 investment grade rating from Moody’s, boosting its maximum gearing limit from 35 per cent to 60 per cent of gross assets, which translates to over $75 million of additional debt capacity.

The Reit, which has a portfolio of 12 industrial real estate assets in Singapore and was listed in April this year at an issue price of $1.20 and distribution yield of 6.2 per cent, traded up to a high of $1.35 at yesterday’s close.

‘With the credit rating, MI-Reit has increased gearing capacity, with available debt capacity of approximately $193 million to fund acquisitions,’ said chief executive Chris Calvert.

The trust said it intends to maintain a long-term target gearing of between 40 to 45 per cent, but might on occasion increase this to secure strategic industrial properties around Asia. Debt is an ‘efficient mechanism’ by which to achieve the target of growing the Reit’s assets by at least $500 million in new acquisitions per year, said Mr Calvert.

The trust’s portfolio had a combined value of about $316 million at listing date. It has not announced any acquisitions post-listing.

Analysts have received the stock warmly, with a present total of four ‘buy’ calls on MI-Reit, according to Bloomberg. These include two reports initiating coverage in the last two days – HSBC and UBS each issued calls on MI-Reit with target prices of $1.57 and $2.07 respectively, making much of its relatively low gearing and capacity for further purchases.

MI-Reit’s acquisition target ‘is achievable given the asset-light trend in a fragmented real estate environment’, HSBC said yesterday. ‘This represents more than doubling its asset size within the first year and a CAGR (compounded annual growth rate) of 79 per cent in portfolio size over the next three years to end FY10.’

Only 12 per cent of the 286 million square feet of Singapore’s private industrial space is owned by Reits, though yields have been driven down by stiff competition, it said.

The bank expects MI-Reit to benefit from JTC’s potential divestment of $3 billion worth of industrial assets, as well as from the networks of strategic partner United Engineers, which it said is expanding in the region.

MI-Reit should trade at a lower yield than peer Cambridge Industrial Trust, due to lower gearing and smaller asset base, which implies higher proportionate accretion from the same value of acquisitions, according to HSBC.

Meanwhile, UBS said industrial assets around Asia are ‘typically the highest-yielding of the main Reit asset classes, providing around a 250 basis point spread over cost of capital’. It believes MI-Reit has identified potential purchases valued at around $210 million in Singapore, to be injected over the next 18 months.

However, UBS noted that 10-year bond yields in Singapore – which have fallen to 2.9 per cent – could rise in the medium term to a forecast 3.2 per cent at the end of the year and put pressure on the Singapore Reit sector.

For its part, HSBC noted MI-Reit’s lack of a sponsor pipeline, but said third-party acquisitions are historically more prevalent for industrial Reits. The potential establishment of JTC Reit could also intensify competition, it noted.

MI-Reit said separately it has appointed Matthew Wrigley, currently head of legal and compliance at parent MacarthurCook in Australia, as chief operating officer of the Reit’s manager in Singapore.