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2 Key Things Investors Should Learn About Singapore’s Industrial REITs

Credit: Axisadman

The Singapore stock market has a good handful of real estate investment trusts that focus on industrial properties.

The largest of them would be Ascendas Real Estate Investment Trust (SGX: A17U), which has total assets of S$9.9 billion as of 30 September 2016. Its portfolio consists of over 100 properties in Singapore, 27 in Australia, and one business park in China.

There might be things about industrial REITs in general that investors can learn from Ascendas REIT given its heft.

During Ascendas REIT’s second-quarter earnings briefing for its financial year ending 31 March 2017 (FY16/17), it shared two important things that concern industrial REITs.

The first one is on regulations around the industrial property sector. The second one is about how industrial REITs can adapt to changing business conditions.

Regulations, regulations, regulations

Chia Nam Toon, the chief executive of Ascendas REIT’s manager, shared his thoughts about regulations around the industrial property sector. He said:

“Another thing to note is that unlike the CBD assets, unlike the retail sector, unlike the hospitality sector, this [referring to the industrial sector] is the most regulated of all sectors. It is good and bad.

The bad news is that because it is highly regulated, you have to work very hard. The good news is that because it is regulated, we have, hopefully, less competition from foreign private funds. So there are plus and minuses here.”

In Chia’s eyes, there are pros and cons for Ascendas REIT when it comes to its focus on industrial properties.

Going with the flow

Chia also talked about the challenges faced by Ascendas REIT. For instance, the JTC Corporation had cut lease terms for industrial properties down to 30 years. Industrial REITs have had to adjust accordingly:

“JTC is coming out with 30-year leases as we all know, and it is becoming harder to get access to land as well.

We have started to convert some of the older assets from MTBs to STBs where it is suitable. Since we have a fairly large portfolio, we have the opportunity to look at those more intently. We are continuing to talk to different clients who need spaces for themselves, expansion requirements, to see whether we can convert some of these assets.”

One way Ascendas REIT has tried to adapt is to convert  multi-tenanted buildings (MTB) to single-tenanted buildings (STB).

STBs tend to have longer leases that provide stability. However, STBs might miss out on rental increases if demand for industrial space picks up. MTBs, on the other hand, often have shorter leases and is more volatile. But if done right, MTBs would be able to catch rental increases if demand for industrial space rises.

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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 doesn’t own shares in any companies mentioned.