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3 Singapore REITs That Can Tell Us About the State of the Economy

Industrial properties represent the economic “heart” of a country and are where logistics, manufacturing and distribution activities take place. In order to assess if an economic downturn is imminent, I decided to study both the occupancy levels of industrial real estate investment trust (REITs) listed in Singapore, as well as their rental reversion rates.

If occupancy rates show a declining trend, this means that more tenants are vacating premises due to waning demand and that this supply is not taken up by other tenants. For rental reversions, positive reversions imply a strong demand for quality industrial space, while negative reversions imply that the REIT manager has to drop rental rates in order to attract tenants.

I chose three industrial REITs with exposure to both Singapore, Australian, and broader Asian industrial properties. Mapletree Industrial Trust (SGX: ME8U), or MIT, owns 87 industrial properties in Singapore and 14 data centres in the US. Cache Logistics Trust (SGX: K2LU) owns 26 logistics warehouse properties located in established logistics clusters in both Singapore and Australia. Finally, Ascendas REIT (SGX: A17U) has a portfolio consisting of 98 properties in Singapore, 35 in Australia and 38 properties in the United Kingdom, and is one of the largest listed REITs in Singapore.

Occupancy levels

A broad look at occupancy rates shows that they are holding up well in general. Only Cache Logistics Trust has reported declining occupancy rates over the last five quarters but it can be argued that this was from a very high base of 97.3% for Q1 2018. For the more diversified REITs (i.e. MIT and Ascendas) which each own over 100 properties, occupancy rates hover around 89% to 91%, and this is considered healthy.

As there is no discernible trend of falling occupancy rates, this also implies that the economies of the world are still chugging along and not giving any undue stress to industrial companies.

Rental reversion rates

The picture is more mixed when we look at rental reversion rates. MIT did not provide overall portfolio reversion rates but instead splits it by industrial property type. The overall picture is that rates before and after renewal had generally held up well, or had dipped just slightly. For Ascendas REIT, rental reversions for the entire FY 2019 were positive and healthy, but Cache experienced persistent negative reversions.

Reversion rates may thus be a function of the region where the properties are located, as well as the track record of the manager and sponsor for the REIT.

Digging for deeper insights

I have just taken a small slice of the industrial REITs listed in Singapore and looked at five quarters of data on occupancy and rental reversions – clearly this is just a small sample.

Investors may wish to dig for deeper insights by taking a larger sample of industrial REITs and also extending the data back by a few years, as economic stagnation may drag itself out over a longer period. However, the data from the two years or so indicate that the Singapore economy is doing fine.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Mapletree Industrial Trust and Ascendas REIT. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.