The acquisition momentum in the industrial REIT subsector has panned out according to our expectations as communicated in our Feb sector report. We note that the YTD aggregate acquisition consideration in the subsector now amounts to S$606.9m, above the S$556.4m level seen in 4Q11. In the months ahead, we believe the acquisition trend will continue, given the still-sound market fundamentals. This may potentially lift their aggregate leverage levels higher. However, industrial REITs’ financial positions are still strong in our view. There is also a recent trend of financing acquisition via a combination of debt and equity. Noteworthy was MLT’s recent issuance of perpetual securities. Such hybrid securities will not only provide REITs with the firepower for future investments but also have the effect of lowering their aggregate leverages. We expect growing popularity in perpetual securities in the industrial REIT space, as REITs seek alternative funding sources apart from a direct rights issue. We maintain our OVERWEIGHT view on the industrial REIT subsector.
Industrial REITs continue to acquire
The acquisition momentum in the industrial REIT subsector has panned out according to our expectations as communicated in our Feb sector report. Following Ascendas REIT’s proposed acquisition of three properties at Science Park Drive in Feb 2012, we note that two other industrial REITs, namely Mapletree Logistics Trust (MLT) and Cambridge Industrial Trust, have also announced their respective acquisitions. All the acquisitions are expected to be DPU-accretive, according to the REIT managers. In addition, the YTD aggregate acquisition consideration in the industrial REIT subsector now amounts to S$606.9m, above the S$556.4m level seen in 4Q11.
Aggregate leverages may continue to inch up
In the months ahead, we believe the acquisition trend will continue, given the still-sound market fundamentals. This may potentially lift their aggregate leverage levels higher. However, industrial REITs’ financial positions are still strong in our view, having taken a proactive approach in their capital management strategy. Mapletree Industrial Trust (MINT), for instance, had successfully refinanced part of its S$209.2m borrowings due in Sep 2012 via the issuance of S$125m 7-year fixed-rate notes recently, thereby extending its average debt duration from 2.5 years to 3.2 years.
Maintain OVERWEIGHT view
There is also a recent trend of financing acquisition via a combination of debt and equity, especially when a REIT’s debt-to-asset level approaches the 40% mark and when the acquisition is sizable. Noteworthy was MLT’s recent issuance of perpetual securities, which followed suit on successful launches by several corporations such as Genting Singapore and Global Logistics Properties. Such hybrid securities will not only provide REITs with the firepower for future investments but also have the effect of lowering their aggregate leverages. The only concern, we believe, is the successful deployment of the net proceeds on yield-accretive acquisitions. We expect growing popularity in perpetual securities in the industrial REIT space, as REITs seek alternative funding sources apart from a direct rights issue. Maintain OVERWEIGHT view on the industrial REIT subsector.
The acquisition momentum in the industrial REIT subsector has panned out according to our expectations as communicated in our Feb sector report. Following Ascendas REIT’s proposed acquisition of three properties at Science Park Drive in Feb 2012, we note that two other industrial REITs, namely Mapletree Logistics Trust (MLT) and Cambridge Industrial Trust, have also announced their respective acquisitions. All the acquisitions are expected to be DPU-accretive, according to the REIT managers. In addition, the YTD aggregate acquisition consideration in the industrial REIT subsector now amounts to S$606.9m, above the S$556.4m level seen in 4Q11.
Aggregate leverages may continue to inch up
In the months ahead, we believe the acquisition trend will continue, given the still-sound market fundamentals. This may potentially lift their aggregate leverage levels higher. However, industrial REITs’ financial positions are still strong in our view, having taken a proactive approach in their capital management strategy. Mapletree Industrial Trust (MINT), for instance, had successfully refinanced part of its S$209.2m borrowings due in Sep 2012 via the issuance of S$125m 7-year fixed-rate notes recently, thereby extending its average debt duration from 2.5 years to 3.2 years.
Maintain OVERWEIGHT view
There is also a recent trend of financing acquisition via a combination of debt and equity, especially when a REIT’s debt-to-asset level approaches the 40% mark and when the acquisition is sizable. Noteworthy was MLT’s recent issuance of perpetual securities, which followed suit on successful launches by several corporations such as Genting Singapore and Global Logistics Properties. Such hybrid securities will not only provide REITs with the firepower for future investments but also have the effect of lowering their aggregate leverages. The only concern, we believe, is the successful deployment of the net proceeds on yield-accretive acquisitions. We expect growing popularity in perpetual securities in the industrial REIT space, as REITs seek alternative funding sources apart from a direct rights issue. Maintain OVERWEIGHT view on the industrial REIT subsector.
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