Industrial REITs lead Q3 NPI growth amongst S-REITs

ESR-REIT’s NPI doubled from its merger with Viva.

Industrial REITs saw the strongest net property income (NPI) growth at 5-101% YoY in Q3 2019, according to Maybank Kim Eng. This was mainly attributed to higher contributions from earlier acquisitions.

In particular, Ascendas REIT saw a 12.0% YoY jump in NPI after the completion of its two UK deals in the second half of 2018. ESR-REIT’s NPI even doubled from the addition of Viva Industrial Trust’s nine properties after merger, as well as its acquisition of 15 Greenwich Drive.

Industrial REITs were also noted to be the most active in deals as they pushed overseas diversification. Overseas assets under management (AUMs) for industrial REITs hit 24-69% of the total from from 9-67%.

“Overseas assets are mostly freehold and should continue to strengthen S-REITs’ overall AUM growth, with their relatively longer WALEs and leases embedded by annual rental escalations supporting DPU visibility,” according to Maybank Kim Eng analyst Chua Su Tye.

Industrial REITs are expected to see stabilising rents and easing supply. The JTC all-industrial rental index only edged up 0.1% in Q3, whilst supply is projected to slow to 1.7% pa for 2019-21 from 3.3% in 2014-18.

“Leasing activity was largely due to renewals and relocations as tenants continued to rightsize or consolidate, while holding back their expansion given uncertain macros, suggesting a slower recovery in rents,” Chua said.

Meanwhile, retail REITs are facing low tenant sales despite a 1-9% YoY growth in shopper traffic, due to weak retail sales. Only the malls in prime Orchard Road like Wisma Atria saw improvement in tenant sales mainly from a lower base.

Still, retail REITs posted better DPU growth during the September quarter, led by Capitaland Mall Trust at 4.8% YoY from higher contributions from Westgate and Funan. REIT-owned malls are expected to outperform the broader market in occupancies and rents.

On the other hand, hospitality REITs have been observed to lag in earnings. However, the city-states revenue per available room (RevPAR) have begun to show signs of recovery with CDL Hospitality Trusts (CDLHT) and Frasers Hospitality Trust (FHT) posting RevPAR growth of 4.9% YoY.