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Phillip: Industrial REITs To Outperform S-REITs
Aspire, Hot Picks | 17 June 2015
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By: Lim Si Jie
Articles (169) Profile

Despite facing a slight correction last month, The Straits Times Index (STI) has been doing well for the past year. However, Phillip expects the outperformance of the STI “to slow down”.

On the other hand, while valuations are catching up, Phillip remains overweight on Singapore Real-Estate Investment Trusts (S-REITs). In particular, industrial REITs remain as Phillip’s top picks amongst S-REITs with industrial REITs making up two of its five recommendations.

Industrial REIT Performance

Many industrial REITs are still undergoing a transition period of converting some of the leases of their Single-Tenanted Buildings (STB) to Multi-Tenanted Buildings (MTB). This has resulted in downtime, higher property expenses leading to pressure on NPI margins and occupancy rates in 1Q CY15.

Industrial REIT Outlook

Rental reversions for industrial REITs will continue to moderate, with this trend expected to continue as the gap between portfolio passing rents and market rents are narrowing further. Phillip expects pressure to continue coming from the supply-side as there will be substantial completion of factory space of 3.07 million sqm in 2015 and 2016.

Keen competition among landlords to secure qualifying tenants will further worsen the oversupply pressure. Warehousing space supply is expected to increase by 1.18 million square-feet. However, with 73.5 percent of this already pre-committed, there is limited oversupply risk.

Recommendation: Industrial REITs

Phillip has picked industrial REITs to perform amongst S-REITs, with two of its top five investment ideas for S-REITs coming from industrial REITs.

Business Space REIT is a good addition to any investor’s portfolio because of the secular trend of decentralisation of commercial activities outside of the CBD areas. As such, business parks in general are expected to perform much better than commercial REITs.

Soilbuild Business Space REIT: BUY, $0.995

For warehouse REITs, Phillip believes that investors should be selective. Investors should choose REITs with a portfolio of warehouses that have good locations (near to ports and airports) and superior design (modern ramp-up type vs. legacy cargo-lift type).

Cache Logistics Trust has a portfolio of quality warehouses that is well positioned to capitalise on Singapore’s status as the regional logistics hub. In addition, Cache Logistics Trust is likely to see DPU growth through Build-To-Suit (BTS) projects that are currently undergoing.

Cache Logistics Trust: BUY, $1.31

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

Cache Logistics Trust  0.775 +0.005 +0.65%   
Business: Principally invest in income-producing real estate used for logistics purposes in Asia-Pacific, as well as real estate-related assets.

Insight: Apr-18, 1Q18 gross revenue increased by 7.3% due t... Read More
Soilbuild Business Space REIT  0.650 -- --   
Business: S'pore real estate investment trust with a focus on biz space ppties.

Insight: Apr-18, 1Q18 gross revenue decreased 11.5% to $19.... Read More


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