AREIT – Nomura

Forum takeaways
From the Nomura Asia Equity Forum: A-REIT confirmed it sees significant rental reversionary potential in its industrial portfolio, specifically business/science park buildings. While appreciative of the risks of a slowing economy, occupancy remains well over 90%, with the three-year lease structure underpinning cashflow surety.

Anchor themes
Higher warehouse supply, at 5.3mn sf in 2008F and 2.3mn sf in 2009F (versus the five-year average of 1.7mn sf) at a time of slowing economic activity (2008F GDP growth of 3%) is likely to adversely impact rental expectations and valuations.

Strong rental reversions are likely to underpin REIT cashflows. That said, increased concerns over the ability to refinance debt have seen REITs trade below book. In such an environment, investors need to focus on underlying asset values, with REITs with well-located assets beneficiaries of rising expectations of M&A activity.

Industrial demand still firm