Industrial REITs – OCBC

Expecting firm performance

• Poised for firm results

• Positive asset revaluation likely

• DPU yields remain attractive

Likely to witness healthy quarterly results

Industrial REITs are expected to kick off the reporting season for the financial quarter ending 31 Mar in mid-April. We believe the REITs will continue to post healthy YoY growth in distributable incomes and DPUs, driven by completion of acquisitions, sound occupancy rates and possibly positive rental reversions. On a sequential basis, the financial performances are expected to stay firm, as contributions from new acquisitions are anticipated to be partially offset by higher operating and financing expenses.

Asset revaluation to provide relief on gearing?

Four industrial REITs, namely AIMS AMP Capital Industrial REIT (AAREIT), Ascendas REIT, Mapletree Industrial Trust and Mapletree Logistics Trust (MLT), will also be concluding their financial years. This will likely be accompanied by a revaluation of their investment properties. Looking at the trend of URA rental and price indexes over the past year, we believe the REITs may likely experience revaluation gains in their portfolios. This may in turn provide some relief on their aggregate leverages, which have mostly been rising amid a spate of acquisitions. In fact, we note that MLT had already announced the completion of the valuations of its 98 properties late this week. The aggregate portfolio amount of S$3.9b, which will be reflected in its upcoming results, was 3.1% and 8.4% respectively to the book values of its investment properties QoQ and YoY.

Subsector yield the highest in S-REIT sector; Cache Logistics is our pick We also revisit the valuations and yields of SREITs, following the recent run-up in the general market. Based on Bloomberg consensus estimates and prices as at 19 Mar 2012, we note that the industrial subsector offers the highest current yield (8.1%), compared to 6.1-7.1% for other subsectors and 6.9% for the overall sector average. We are maintaining OVERWEIGHT on the industrial REIT subsector. Cache Logistics remains our preferred pick, given its attractive FY12F DPU yield of 8.5% and robust portfolio.