The View Of Singapore’s Industrial REITs: It’s A Tough Year Ahead

Times are looking tough for real estate investment trusts in Singapore that focus on industrial properties.

That’s the sentiment that have been recently expressed by a number of players. Take Singapore’s largest industrial REIT, Ascendas Real Estate Investment Trust (SGX: A17U), for instance. It is not immune to challenging economic conditions. In its latest earnings report, the REIT said:

“The industrial property market condition in Singapore is expected to remain challenging. With significant new supply and tepid economic growth both in Singapore and globally, there may be pressure on occupancy growth in Singapore.”

It’s not occupancy growth alone that could potentially be troubling industrial REITs. Another industrial REIT, Mapletree Industrial Trust (SGX: ME8U), expressed concerns around rental rates and costs as well. It noted in its latest filing:

“The business environment is expected to remain challenging, given the muted global economic outlook and large supply of industrial space in Singapore. In addition, the ongoing economic restructuring in Singapore is expected to result in the cost increase of outsourced service contracts. These may exert pressure on rental and occupancy rates, while property expenses are expected to increase.”

Mapletree Logistics Trust (SGX: M44U), a peer of Mapletree Industrial Trust, has a similar opinion. Ng Kiat, the chief executive of the REIT’s manager, had shared the same concerns around rental rates:

“The year ahead is expected to remain challenging given the uncertain macroeconomic outlook. The softening economic environment will likely exert pressure on rental rates although demand for modern, well-located warehouse space is expected to remain stable. Tenants are cautious and slower to commit.”

The issue about rent was also brought up by AIMS AMP Capital Industrial REIT (SGX: O5RU), a smaller industrial REIT in the market. It cited pressure on rentals in its latest earnings report:

“However, given the weak economic climate and industrial oversupply situation in Singapore, rents continue to be under pressure. As the industrial property market is expected to continue to be challenging, AA REIT [AIMS AMP Capital Industrial REIT] remains cautious on the outlook of the industrial market and will continue to proactively manage AA REIT’s lease expiries.”

The four aforementioned industrial REITs are dealing with the challenges in their own way. Ascendas REIT, for instance, thinks that its diversity – regarding multiple tenants and properties – will help it weather the storm:

“A-REIT [Ascendas REIT] is well-diversified in terms of rental income. The customer base is about 1,470 tenants spread over 103 properties in Singapore, 27 in Australia and 3 in China. No single property accounts for more than 5.4% of A-REIT’s monthly gross revenue. The stability of AREIT’s future performance is underpinned by the diversity and depth of its portfolio.”

Not all REITs are as diversified as Ascendas REIT though. AIMS AMP Capital Industrial REIT will be leaning on the quality of its assets to make a difference. Meanwhile, Mapletree Logistics Trust is looking at its well-staggered lease profile to hold the fort. Elsewhere, Mapletree Industrial Trust has a slightly different focus:

“The Manager will continue to focus on tenant retention to maintain portfolio occupancy. In order to manage cost pressures, the Manager will shift towards performance-based contracts where feasible.”

The industrial properties sector has traditionally been cyclical in nature. It will be interesting to observe how the four REITs above weather the storm in their own way in the coming quarters. From this experience, investors can learn which REIT can hold up better than others.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns units in Mapletree Logistics Trust.