Industrial REITs – OCBC

Summary: Industrial REITs have proven its defensive nature YTD, having generally outperformed both the broader REIT sector and STI. On the operational level, they also put up a strong showing. Going into 2012, we expect the industrial REITs to adopt a more cautious stance on their acquisition plans. On a brighter note, despite the lower expected investments, we still anticipate industrial REITs to rake up a good set of financial performance in 2012, thanks to their proactive approaches on investment/ asset enhancement activities over the past year, built-in rental escalations and possibly further positive rental reversions. We continue to maintain our OVERWEIGHT view on the industrial-REITs subsector. Industrial REITs, we note, offer one of the highest DPU yields in the REIT space. This is in addition to the relative stability and earnings visibility in their portfolio, backed by longer term leases, diversified tenant base and security deposits. In addition, they now have stronger financial positions and greater access to capital, unlike the difficult times seen in the global financial crisis. We maintain our BUYs for A-REIT and MLT, and single out CACHE as the preferred pick for this subsector.