Wednesday, October 16, 2013

S-REITs - Losing momentum (CIMB)

As the industrial market becomes more regulated, coupled with a mismatch in the pricing expectations of vendors and investors, we expect industrial REITs’ earnings growth to slow down.

As a result of a more competitive and regulated market, announced acquisitions and BTS projects have dropped off in recent quarters. In the coming results season, we expect growth from organic positive reversions rather than acquisitions. We remain Neutral on the sector with CACHE and AREIT as our preferred choices.

No more easy M&A
As a result of the heightened regulation of the industrial property market and compressed cap rates of 6-6.5% (from their long-term average of 6.5-7.5%), industrial REIT managers have been finding it more difficult to acquire yield-accretive properties. In addition, the shortening of land tenures from 60 to 30 years and upfront land premiums have hit the profitability of BTS projects. For these reasons, we expect industrial REITs’ earnings growth to slow down.

Flat rentals but positive reversions still possible
Although Singapore’s MPI continues to grow, rental growth is expected to remain soft as a result of the relatively high supply of industrial space. However, REITs should still be able to achieve positive rental reversions as most of their leases due in 2013 had been signed during the global financial crisis.

Stable earnings expected
We expect a stable 3Q13 for industrial REITs under our coverage, which are due to report their results soon. Our preferred stocks in the industrial space are CACHE and AREIT for their stable outlook and defensiveness

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 14/10/13

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