OREANDA-NEWS. Real Estate Investment Trusts (REITs) raise capital to purchase primarily real estate assets, usually with a view to generating income for unit holders of the fund. It allows individual investors to access real property assets and share the benefits and risks of owning a portfolio of properties, which typically distribute income at regular intervals.

The Singapore Exchange lists 29 Real Estate Investment Trusts (REITs) and six stapled trusts. Seven of these are classified as Industrial REITs, according to the Global Industry Classification Standards (GICS®). This sub-industry consists of trusts engaged in the acquisition, management and operation of industrial properties, including companies operating industrial warehouses and logistic distribution properties.

The four Industrial REITs that reported quarterly earnings yesterday and last Friday have a combined market capitalisation of S$9.3 billion. In the year thus far, the four have averaged a negative total return of 5.2%, bringing their one-year and three-year total returns to a negative 17.6% and a negative 9.8% respectively. They also averaged a price-earnings (PE) ratio of 11.8 and a dividend yield of 8.7%.

A fifth Industrial REIT – Mapletree Industrial Trust – will release its quarterly results after the market close today.

For the three months ended 31 December, 2015, the four trusts averaged a distribution per unit (DPU) of 2.4 Singapore cents, unchanged from the average in the year-earlier quarter.

Ascendas REIT had the highest DPU of 3.95 Singapore cents in the quarter, registering the highest YoY percentage increase of 9.9%. Sabana Shari’ah Compliant Industrial REIT had the lowest DPU of 1.50 Singapore cents, down 15.3% year-over-year. Mapletree Logistics Trust’s DPU was unchanged from the year-ago quarter at 1.87 Singapore cents, while Cache Logistics Trust posted a 3.4% YoY decline in its DPU to 2.07 Singapore cents.

The four trusts averaged net property income of S$63.0 million for the quarter, with two of the four trusts – Cache Logistics and Sabana REIT – posting YoY percentage declines, while the others registered YoY percentage gains. Average gross revenue for the four trusts stood at S$82.8 million, with three registering percentage gains over the year-ago period.

The Industrial REITs had an average aggregate leverage ratio of 39.5% as at 31 December, 2015, versus 37.4% as at 30 September, 2015. Aggregate leverage is calculated as the ratio of total outstanding borrowings divided by total assets as at a stated balance sheet date.

Interest coverage for the four trusts averaged 5.1 times as at 31 December, compared with 5.2 times as at 30 September. This ratio is derived from dividing earnings before interest and tax (EBIT) by interest expense.

Among the four trusts, the two with the highest leverage ratios were Cache Logistics Trust and Mapletree Logistics Trust, at 39.8% and 39.0% respectively.

Weak Outlook

The Singapore economy expanded by 2.1% in 2015, in line with the government’s official forecast and beating analysts’ expectations, but represented the city-state’s slowest growth rate in six years, advance estimates from the Ministry of Trade and Industry showed earlier this month.

The outlook for the domestic industrial property market is expected to remain challenging in the near term, Ascendas REIT, Cache Logistics Trust and Sabana REIT said in their results statements.

The sector continues to be weighed down by an imbalance in the supply and demand of industrial space, slowing global growth and government regulations, Cache Logistics added.

The acquisition of six warehouses in Australia totalling 1.45 million square feet last year provides a good balance to Cache’s predominantly Singapore-based portfolio and allows the trust to ride on the country’s longer term growth prospects, it added.

Likewise, growing global macroeconomic uncertainties have contributed to a difficult leasing environment in Mapletree Logistic Trust’s markets, with delayed decision-making over the renewal of leases and take-up of new space, Mapletree said in its results statement.

Sabana REIT also forecast a weaker near-term financial performance, due to negative rental reversions from the renewal of some master leases, as well as increased vacancies and higher operating expenses.

However, on a positive note, the Singapore government’s move to reduce industrial land sales in the first half of 2016 will likely provide more time for the market to absorb the existing supply, Sabana REIT noted.

Meanwhile, Singapore’s industrial REITs are expected to maintain their appetite for overseas acquisitions this year, as they pursue asset growth, yield accretion and portfolio diversification amid tough business conditions, Moody's Investors Service said in a statement dated 20 January.

With industrial occupancy and rental rates in Singapore remaining under pressure this year as new supply outpaces demand, the move towards lower asset concentration in Singapore is credit-positive for the Singapore REITS, the ratings agency said.

In addition to higher yields, overseas acquisitions will also help the REITs increase their portfolio size, expand their geographical reach and enhance their income diversification, Moody's added.

Moody's expects the REITS to continue to exercise discipline in financing their acquisitions with a prudent mix of debt and equity to maintain their credit profiles.

Financial results for quarter ended 31 December 2015

The four trusts are tabled below and sorted by market capitalisation. Clicking on a trust name will take you to its relevant page on StockFacts.

Name Code Market Cap in S$mln Px Chg YTD % Total Return YTD % Total Return 1 Yr % Total Return 3 Yrs % P/E Dvd Ind Yld % Price vs 12M High % Price vs 12M Low %
Ascendas REIT A17U 5,678 -4.8 -4.8 -7.1 5.0 13.1 6.5 -17.3 7.2
Mapletree Logistics Trust K2LU 2,297 -7.1 -7.1 -21.5 -3.9 9.6 8.1 -27.4 0.5
Cache Logistics Trust M44U 780 -5.5 -5.5 -21.6 -14.5 10.9 9.8 -27.4 2.9
Sabana Shari’ah Compliant Industrial REIT M1GU 509 -3.5 -3.5 -20.2 -25.8 13.7 10.3 -24.5 2.2
Average     -5.2 -5.2 -17.6 -9.8 11.8 8.7 -24.1 3.2

Source: SGX, Bloomberg & SGX StockFacts (data as of 25 January 2016)

Ascendas REIT

Ascendas REIT invests in business and science park properties in Singapore and China. As at 30 September 2015, their portfolio consists of 102 properties in Singapore and 2 business park properties in China. The properties host a customer base of around 1,470 international and local companies from a wide range of industries and activities, including research and development, life sciences, information technology and engineering.

Mapletree Logistics Trust

Mapletree Logistics Trust, together with its subsidiaries, operates as a logistics real estate investment trust primarily in Singapore. It invests in a portfolio of logistics real estate and real-estate-related assets. The company’s properties include oil and chemical logistics, free trade and non-free trade zone third party logistics, food and cold storage, distribution centre, and industrial warehousing. As of September 30, 2015, its portfolio consists of 119 properties across 8 geographic markets, with a total asset value of S$5.0 billion.

Cache Logistics Trust

Cache Logistics Trust is a real estate investment trust that invests in income-producing real estate focused on logistics purposes as well as real estate-related assets within Asia-Pacific. Its portfolio consists of 16 logistic warehouse properties located in Singapore, Australia, and China. As of 30 September 2015, their portfolio has a total gross floor area of approximately 6.7 million square feet valued at approximately S$1.3 billion.

Sabana Shari’ah Compliant Industrial REIT

Sabana Shari’ah Compliant Industrial REIT is a Shariah compliant equity real estate investment trust launched and managed by Sabana Real Estate Investment Management Pte Ltd. The REIT owns and invests in income-producing real estate used for industrial purposes, as well as real estate-related assets. Sabana’s portfolio comprises of 23 quality industrial properties which are strategically located near to expressways and public transportation across Singapore.